Motilal Oswal Financial Services

Sector Initiation | October 2021

Logistics

Huge Logistics cost, as a percentage of

GDP, impacts India’s competitiveness

(%)…

On the cusp of a transformation

Initiating coverage with a positive outlook



14.0

10.0

7.6

11.0



…due to inefficient modal mix (led by

a higher share of Road transport)

Road

Pipeline

18.7

9.4

32.9

4.0

40.0

10.0

Rail

Air

2.0

35.0

18.0

Water

6.0

4.0

17.5



USA

Europe

China

India

The Indian Logistics sector is set to witness a transformation, led by: 1) reforms like

GST and e-way bill ushering in a sea change in transparency and consolidation; 2)

development of support Infrastructure that improves connectivity and leads to a

faster turnaround time; 3) change in the perception of Logistics being more than just

Transportation and Warehousing, but as a specialized function; 4) evolving consumer

demands, where the speed of delivery is of utmost importance; and 5) emergence of

tech driven operators in this space, who are fast capturing market share.

The Logistics market, pegged ~USD250b, is expected to grow at 10-12% CAGR, with a

pick-up in demand. The shift to organized from the unorganized sector (~90%

currently) would be an additional kicker. The demand for value added services is on

the rise.

We expect the 3PL segment to witness a strong pick-up as more companies outsource

a large part of their Logistics to 3PL operators. Express cargo would benefit from a

pickup in Manufacturing and exponential growth in e-commerce. We expect the Rail

Container operators to gain traction with the commissioning of the Dedicated Freight

Corridor (DFC).

In this sector initiation report, we set forth our views on six companies in India’s

Logistics space: TCI Express (TCIE), Transport Corporation of India (TCI), VRL Logistics

(VRL), Blue Dart Express (BDE), Mahindra Logistics (MLL), and Container Corporation of

India (CCRI). We assign a Buy rating to TCIE, TCI, VRL, and CCRI, and a Neutral rating to

BDE and MLL. TCI is our top pick in this space.

With reforms (GST, e-way bill, etc.)

and Infra development, industry to

see robust growth (USD b)

Logistics Market size

380

250

170

Reforms changing the face of the Logistics industry

The Logistics industry has seen a massive change in the last few years, with the

introduction of reforms like GST and e-way bill. With the abolishment of state-level

taxation through GST, the industry is heading towards consolidation and efficiency.

Transportation is now much faster, and smaller inefficient warehouses have made

way for larger centralized warehouses. e-way bill has improved transparency in the

Road Freight industry, which has been traditionally dominated by the unorganized

segment. These reforms are propelling higher growth and formalization.

Infra development takes center stage, to reduce Logistics costs

FY17E

FY21E

FY25E

Value added segments to outpace

overall industry growth (USD b)

3PL Market

16-18% CAGR

Express Market

16.0

The high cost of Logistics in India has been due to an inefficient modal mix, driven by

a relatively inefficient Road segment. While Road Infra has massively improved over

the last few years, Rail and Waterways are catching up now. The Road segment has

always benefited as it could provide last-mile connectivity. With a dedicated Rail

network for freight getting operationalized in phases, the market share for Rail

would increase in the modal mix, which would benefit companies like CCRI.

Value added services like 3PL and Express businesses are well placed

7.3

7.7

3.3

FY20E

FY25E

Increasing need for integrated Logistics solutions and higher adoption of 3PL by end-

use sectors would usher strong demand for 3PL (to benefit companies like TCI and

MLL). In Express, a pick-up in Manufacturing (B2B) and exponential growth in the e-

commerce space (B2C) will benefit companies like TCIE and BDE.

We expect 3PL and

Express to grow at 16-18% CAGR over the next five years.

October 2021

Logistics

Emergence of new age tech and PE funded Logistics operators

Over the last decade, several new age tech and PE funded Logistics operators

(Delhivery, Ecom Express, etc.) have made a strong penetration in this space,

especially in the Express industry. Starting with B2C Express (driven by e-commerce),

some are now attempting to capture market share in the B2B segment, led by

Manufacturing. This has increased competition in selected areas for traditional

operators. The massive usage of technology to save on costs and create efficiency is

providing an edge to some of these players.

Initiate coverage with a positive outlook

The reforms undertaken in the Logistics space, along with a flurry of investments in

infrastructure in the recent years, have created a solid base for sustainable growth.

While traditional Logistics segments like FTL/LTL would grow well, driven by a pick-

up in overall economic activity, we expect the niche value added services segments

like 3PL and Express to grow at a faster pace. With strong industry growth, coupled

with a shift to the organized from the unorganized sector, the outlook for the

organized players seems extremely bright. We initiate coverage on this space with a

positive outlook.



TCI Express (BUY) – Delivering with speed:

TCIE is one of the better placed

Express players, with: a) a robust position in the Express industry, b) higher

contribution from B2B clients, and c) focus on the growing SME sector. We

expect TCIE to clock a revenue/EBITDA/PAT CAGR of ~19%/26%/24% over FY21-

24E. We value TCIE at 38x FY24E EPS to arrive at our TP of INR1,900.

Transport Corporation (BUY) – A multi-modal play:

TCI is a long-term play,

backed by: a) a diversified clientele base (with no reliance on anchor

customers), b) improving share of high margin Less than Truck Load (LTL)

business in the Road Freight division, and c) strong presence in the high growth

3PL segment. We expect the company to clock a revenue/EBITDA/PAT CAGR of

~17%/21%/26% over FY21-24E. We value TCI at 15x FY24E EPS to arrive at our

TP of INR620.

Blue Dart Express (Neutral) – In the Express lane:

Key triggers include: a)

expected pickup in the overall Express industry driven by e-commerce and the

Manufacturing segment, b) increasing share of the high growth Ground Express

business, and c) focus on new initiatives like tie-ups for distribution of certain

packages via drones. We expect BDE to clock a revenue/EBITDA/PAT CAGR of

~15%/16%/28% over FY21-24E. We initiate coverage with a Neutral rating on

the stock with a TP of INR7,010 (27x FY24E EV/EBITDA).

Mahindra Logistics (Neutral) – Established player in the high growth 3PL space:

Robust industry growth, asset light business model, and strong parentage of the

Mahindra group are key triggers for MLL. We expect a revenue/EBITDA/PAT

CAGR of ~18%/34%/63% over FY21-24E. We value MLL at 40x FY24E EPS to

arrive at our TP of INR795 and assign a Neutral rating. At the CMP, most of the

positives are priced in.

VRL Logistics (BUY) – Asset ownership at play:

We expect robust demand from

the LTL segment over the next couple of years (driven by reforms like GST and e-

way bill), which would result in 16% revenue CAGR over FY21-24E. We expect

the healthy margin profile to continue, leading to 15% EBITDA CAGR. With a low

growth in depreciation due to the limited capex requirement, we expect 37%

October 2021

Logistics



PAT CAGR over FY21-24E, with a RoE of ~17% in FY24E. We initiate coverage

with a Buy rating on the stock with a TP of INR460 (35x FY24E EPS).

Container Corporation of India (BUY) – Largest beneficiary of DFC:

CCRI is the

undisputed market leader in Rail freight Logistics, benefitting from the

commissioning of DFCs, leading to higher margin and volume. We expect CCRI to

clock a revenue/EBITDA/PAT CAGR of ~22%/37%/44% over FY21-24E. The stock

trades at 13x FY24E EV/EBITDA. We derive a DCF-based TP of INR800 and assign

a Buy rating on the stock.

Delhivery (not rated) – Riding the e-commerce wave:

Delhivery has become

one of India’s leading supply chain service companies since its inception in CY11.

It provides a range of services, which includes Express services, LTL and FTL

freight, reverse Logistics, and B2B and B2C Warehousing, with B2C contributing

~65% of the business for Delhivery. It operates 20 automated sorting centers,

over 67 fulfillment centers, and more than 68 hubs, catering to over 17,000 pin

codes spread across more than 2,825 towns.

Key risks



Players have managed to pass on the fuel cost increase, albeit with a lag. Any

major increase in fuel costs may hurt the margins of Logistics operators, if they

fail to pass on the same entirely.

If there are any new transport restrictions imposed due to a fresh COVID wave,

then it could have negative implications on the near term performance.

Exhibit 1: Business landscape

Road

TCI Express

Transport Corp.

Mahindra Logistics

Blue Dart

VRL Logistics

Gati

Gateway Distriparks

Container Corp.





Transportation

Coastal/

Rail

Inland













Storage

Air













Warehousing







CFS/ICD





Cold chain







Value added services

Express

Supply

Cargo

chain/3PL





















Source: Company, MOFSL

October 2021

Logistics: On the cusp of a transformation - Key charts

Logistics market to grow after the recent reforms

RECENT REFORMS

(USD b)

Logistics Market size

380

250.0

E-Way

bill

GST

Infra

Development

170.0

FY17E

FY21E

FY25E

3PL to outpace industry growth

3PL Market Size

INR1200b

INR580b

FY20E

FY25E

Booming

E-commerce

segment

SME demand

pick-up

Changing

consumer

preference

Technology

disruption

FY20E

FY25E

Express

industry to

witness robust

growth (~17%

CAGR)

INR548b

INR250b

FY20E

FY25E

Logistics: On the cusp of a transformation - Key charts

OVERALL LOGISTICS INDUSTRY

WHAT LIES AHEAD

KEY REFORMS



GST



EWay bill



With reforms, logistics cost as % of GDP

is targeted to reduce to 10% (14%

currently)



With DFC, the Rail share is expected to

rise in Modal mix



Focus is shifting on improving service

quality and providing integrated

services

VALUE ADDED BUSINESSES IN FOCUS

INFRA DEVELOPMENT



Roads – Bharatmala

program



Railways – DFC



Waterways -

Sagarmala

CHANGING FACE

LOGISTICS SECTOR

COST AND TIME

CONSIDERATION



Optimizing modal

shift



Increased use of

technology to cut

costs and faster

delivery

3PL or

Contract

logistics

TECHNOLOGY

DISRUPTION



Entry of new age

tech driven players



E-comm segment

witnessing

exponential

growth

Express

delivery

GST IMPACT AND OPPORTUNITIES FOR SERVICE PROVIDERS

TRANSPORTATION



Increased vehicle capacity

requirements as business changes

to Hub and Spoke model.



Reduce transportation costs

through optimum usage of fleet.

Higher demand for different types

of fleet for secondary distribution

WAREHOUSING



Post GST, the customer

warehousing requirements is

consolidated and moving to

centralized location closer to the

demand market.



Demand for Grade A warehousing

of larger scale is taking off.



Focus on cost rationalization and

technology.

OPPORTUNITY FOR

LOGISTICS OPERATORS



This benefits the logistics industry

as demand for heavy duty trucks

and warehousing moves higher

thereby increasing utilization levels



Focus on technology driven services

shoots up as cost control is on

priority



Increased requirements for 3PL

type of blended solutions.

Source: MOFSL

Logistics: On the cusp of a transformation - Key charts

BENEFITS OF E-WAY BILL

Single bill for

Pan India

Transportation

Prevention of

tax evasion

BENEFITS

OF E-WAY

BILL

Seamless

goods

Movement

Tracking Goods

Movement

through the bills

Easier

Verification by

Officers

Source: MOFSL

VALUE ADDED SERVICES – 3PL AND EXPRESS SEGMENTS

3PL OR CONTRACT

LOGISTICS

3PL service providers provide

inbound and outbound logistics

services to various manufacturing

and service companies. These service

providers take responsibility for

transportation, warehousing and

other value-added activities such as

packaging, sorting, labeling, reverse

logistics among others.

EXPRESS LOGISTICS

ABOUT THE

SERVICE

It offers door-to-door delivery across

regions along with real-time

shipment tracking facilities, and

serves the need for time-sensitive

logistics services for customers

requiring transport of less than truck

load cargo.

WHY IN DEMAND

One stop shop for outsourcing the

entire or large part of logistics function

Time and criticality of the shipment is

the essence

KEY END USE

SEGMENTS

The key end-user industry segments for

these services are auto, retail, pharma,

FMCG, telecom and e-commerce.

The key consumer industries of express

logistics are auto components, banking

and financial services, IT components,

apparel, pharmaceuticals, telecom

products and e-commerce, among

others

Logistics

COMPANY SNAPSHOT



Its asset light model (leases

requirement for trucks and

warehouses) enables greater

operational flexibilities, helps

manage the business

slowdown better, and deliver

robust returns



With no single client

contributing significantly to

revenue, the business is very

well diversified. A higher

share of the B2B business

(95%) reduces volatility in

operations



While the segment has seen

the emergence of new age

technology-backed players,

TCIE has maintained its

growth momentum with its

sheer size and widespread

network



The company is in the high



It has developed a robust



The company has an

growth 3PL segment, with

business model, with multi-

unparalleled network,

over 50% contribution from its

modal capabilities, via its

covering over 35,000

anchor client: the Mahindra

presence across major modes

locations, and catering to

group. It is continuously

of transportation

more than 220 countries and

increasing business from non-



It has a well-diversified

territories worldwide through

M&M clients

portfolio, with major

its group company DHL - the



MLL's largest end-use segment

contribution from freight

premier global brand name in

of Automotive (~60% share) is

services and supply chain

Express distribution services

expected to pick-up Even the

(3PL) solutions. The 3PL



The B2B segment constitutes

non-Auto verticals like Pharma

segment is expected to pick

majority of BDE's revenue

and Consumer continue to

up sharply as clients demand

(~80%). The B2B segment is

gain strong traction

more integrated solutions

more stable as compared to



With strong group support,



TCI is a decent long-term play,

B2C, with a sticky clientele

increasing share of non-M&M

backed by: a) a diversified

and demand emanating from

customers, and an asset light

clientele base, b) improving

the Manufacturing segment

business model, the company



The management is focusing

share of the high margin LTL

is well placed to capitalize on

business, and c) rising

on increasing its presence in

this opportunity

contribution to the overall pie

Tier II and III regions and on

from the Seaways segment

the fast growing Ground

Express segment



An established Logistics

operator in the LTL business,

with a 90% contribution

(~10% business from FTL),

supported by a fleet of 4,588

owned trucks, catering to 884

locations, and focusing on the

higher margin LTL business



VRL is primarily focused on

the B2B segment, which is

considered to be more stable

as compared to B2C. It is

well-diversified in terms of

the end-use segment and

customer base, with the top

10 customers contributing

only 3% revenue to the

Goods Transport business



The company uses bio-diesel

(23% of its fuel requirement

in FY21), which helps it

reduce fuel costs. Being the

owner of a large fleet, the

company is better able to

negotiate spare parts and

maintenance-related costs



It started as a hyperlocal food-



CCRI is the undisputed market

delivery startup, ferrying food

leader in Rail freight Logistics,

from Restaurants to customers. It

with the largest network of 84

has now diversified into areas

Inland Container Depots

such as cross-border, B2B

(ICDs)/Container Freight

Logistics, and integrated

Stations (CFSs), and

distribution solutions to

commanding a 65-70% share

enterprises

in the Rail container traffic in



The company, which disrupted

India.

the B2C market, has diversified



It would be the biggest

into the B2B segment. At present,

beneficiary of the

the B2C segment contributes

commissioning of the

~65% of the business. It expects to

dedicated freight corridors

have an equal share of B2B and

(DFCs), which enables: a)

B2C going forward

double stacking, b) higher load



Delhivery uses artificial

capacities, and c) reduced

intelligence (AI) and machine

turnaround time.

learning (ML) optimization tools,



EXIM business volume share

which helps assess the best route,

stands at 80% and rest is from

time, etc. for delivery. This helps it

the domestic business. It is

offer a cost-effective service, with

targeting 40% volume share

the highest quality. The company

from the domestic business

also has a proprietary system,

over the next 3-4 years.

which undertakes geocoding and

helps connect last-mile riders with

end-consignees in an efficient

way. Delhivery recently acquired a

software as a service (SaaS)

platform Primaseller, which would

help bolster the technical

capabilities of Delhivery

October 2021

Logistics

Exhibit 2: Valuation assessment

M-cap (INR b)

Rating

CMP

EPS FY24E

P/E FY24E

Target multiple (x)

Target

61.5

BUY

1,598

50.1

31.9

1,900

36.5

BUY

472

41.3

11.4

620

154.6

NEUTRAL

6,515

108.5

60.0

NA*

7,010

54.0

NEUTRAL

753

19.9

37.9

795

34.0

BUY

385

13.2

29.2

460

413.2

BUY

678

29.0

23.4

NA*

800

Upside (%)

*BDE has been valued using EV/EBITDA and CCRI valued using DCF

Source: Company, MOFSL

Exhibit 3: Relative performance comparison

Revenue CAGR (FY21-24E, %)

EBITDA CAGR (FY21-24E, %)

PAT CAGR (FY21-24E, %)

Average RoE (FY22-24E)

Average RoCE (FY22-24E)

EV/EBITDA FY24E

26.8

26.5

22.5

17.0

15.1

7.7

23.6

25.5

25.0

14.7

17.3

16.0

15.0

15.8

8.6

13.0

13.3

12.9

October 2021

Logistics

Indian Logistics industry: Transforming through reforms

Government reforms and

increased use of technology

is leading the

transformation way.

Organized players to benefit

Over the last few years, the government has undertaken several major reforms (GST

and e-way bill), which has led to higher formalization of the sector, greater

transparency, and faster turnaround time. The industry is consolidating, with

smaller unorganized players moving out of the market and businesses shifting to

organized players. We have seen massive developments in the Road segment,

leading to improved connectivity and speed of transportation. We are also seeing

investments in Railways and Water transport. The DFC is expected to result in a

change in the modal mix towards the cost-efficient Railways segment. Logistics costs

in India are among the highest at 14% of GDP, due to the inefficient modal mix,

which is tilted towards the Road segment. Greater share of the unorganized sector

leads to inefficiency and higher costs. Logistics costs are expected to fall, with

increased technology usage and higher share of other transport modes. Several new

age players are making their presence felt in the market, with massive use of

technology. They have managed to gain market share from traditional players.

Segments like e-commerce are growing exponentially. Significant technology usage

is being seen in these segments.

OVERALL LOGISTICS INDUSTRY

WHAT LIES AHEAD

KEY REFORMS



GST



e-way bill



With reforms, Logistics cost, as a

percentage of GDP, is targeted to reduce

to 10% (14% currently)



With DFC, the Rail share is expected to

rise in Modal mix



Focus is shifting on improving service

quality and providing integrated

services

VALUE ADDED BUSINESSES IN FOCUS

INFRA DEVELOPMENT



Roads – Bharatmala

program



Railways – DFC



Waterways -

Sagarmala

CHANGING FACE OF

LOGISTICS SECTOR

COST AND TIME

CONSIDERATION



Optimizing modal

shift



Increased use of

technology to cut

costs and faster

delivery

3PL or

Contract

Logistics

TECHNOLOGY

DISRUPTION



Entry of new age

tech driven players



e-commerce segment

witnessing

exponential

growth

Express

delivery

October 2021

Logistics

Reforms in Logistics

GST – Formalization on its way

GST is leading to more

formalization in the

industry. This is helping in

better compliance, faster

turnaround time, and

industry consolidation

Implementation of the Goods & Services Tax (GST) in FY18 is ushering formalization

in the Logistics industry. The turnaround time for Transportation has improved

drastically (down by ~20% due to fewer stoppages during transit). There has also

been a surge in demand for centralized A-grade warehouses. With the

implementation of GST, state check posts and taxes have been removed.

Consolidation of warehouses is leading to reduction in excess inventory, thus saving

on costs. Logistics players have now moved to a Hub and Spoke model and business

is shifting to organized from unorganized players.

GST IMPACT AND OPPORTUNITIES FOR SERVICE PROVIDERS

TRANSPORTATION



Increased vehicle capacity

requirements as business changes

to Hub and Spoke model.



Reduce transportation costs

through optimum usage of fleet.

Higher demand for different types

of fleet for secondary distribution

WAREHOUSING



Post GST, the customer

warehousing requirements is

consolidated and moving to

centralized location closer to the

demand market.



Demand for Grade A warehousing

of larger scale is taking off.



Focus on cost rationalization and

technology.

OPPORTUNITY FOR

LOGISTICS OPERATORS



This benefits the Logistics industry

as demand for heavy duty trucks

and warehousing moves higher

thereby increasing utilization levels



Focus on technology driven services

shoots up as cost control is on

priority



Increased requirements for 3PL

type of blended solutions.

Source: MOFSL

GST rates on Logistics



5% GST on transport in case input tax credit (ITC) is not availed

12% GST on transport in case ITC is availed

18% on Warehousing

Consolidation in the industry

The Transport industry is highly unorganized with several small local fleet operators.

With GST taxing all levels of value added, the industry would gradually move

towards formalization. The higher levels of compliance with GST, along with the

reduction in cost competitiveness, would result in smaller players moving out of the

system and market share moving towards organized players.

With the rollout of GST, smaller, localized, and inefficient warehouses will be unable

to sustain as they are becoming uncompetitive. As highlighted previously, demand

would shift towards owning larger Grade A kind of warehouse space in select

demand hubs. Large organized players, with large Warehousing capacity in place

and the ability to invest more in warehouses would see strong market share gains

going forward.

October 2021

Logistics

e-way bill key to transparency

e-way bill implementation

has led to better

transparency and

compliance, aiding the

organized sector

The e-way bill was implemented across India in Apr’18, starting with inter-state e-

way bills. This is an electronic bill for movement of goods within a state or interstate

to be generated on the e-way bill portal for a value exceeding INR50,000. The

physical copy of the e-way bill must be present with the transporter and includes

information about the transporter, the consignor, and recipient.

The validity of e-way bill depends on the distance to be traveled by the goods. For a

distance of up to 200km, the e-way bill would be valid for a day from the time the e-

way bill has been generated. For every 200km thereof, the validity will be an

additional day from the date of e-way bill generation.

BENEFITS OF THE E-WAY BILL

Single bill for

pan India

transportation

Prevention of

tax evasion

BENEFITS

OF E-WAY

BILL

Seamless

movement of

goods

Tracking goods

movement

through bills

Easier

verification by

officers

Source: MOFSL

Exhibit 4: e-way bill generation since implementation

(Nos. in m)

InterState

Intrastate

309

369

376

249

FY19

259

FY20

241

FY21

Source: GSTN, MOFSL

e-way bill generation has seen strong growth in FY20, despite the pandemic

impacting operations in Mar’20. FY21 saw a decline on a YoY basis as the Road

network was under lockdown during the first few months of the fiscal.

October 2021

Logistics

Based on the reforms detailed above, the sector is all set to see robust

growth over the next few years

The Logistics sector is estimated to have clocked 10% CAGR during the last few

years, despite several inefficiencies in the system. Most Logistics spends are towards

transportation, followed by Warehousing. Based on the reforms undertaken over

the last few years, the industry is expected to grow faster over the next few years.

Some new business models like 3PL and Express Logistics would grow faster than

the overall sector.

Exhibit 5: Logistics market to grow after the recent reforms

(USD b)

Logistics Market size

380

Exhibit 6: Transportation constitutes bulk portion of the cost

Warehousing/

Storage, 15%

250.0

170.0

FY17E

FY21E

FY25E

Source: Industry reports, MOFSL

Transportation,

85%

Source: Industry reports, MOFSL

October 2021

Logistics

Value added services – 3PL and express segments

3PL OR CONTRACT

LOGISTICS

3PL service providers provide

inbound and outbound logistics

services to various manufacturing

and service companies. These service

providers take responsibility for

transportation, warehousing and

other value-added activities such as

packaging, sorting, labeling, reverse

logistics among others.

EXPRESS LOGISTICS

It offers door-to-door delivery across

regions along with real-time

shipment tracking facilities, and

serves the need for time-sensitive

logistics services for customers

requiring transport of less than truck

load cargo.

ABOUT THE SERVICE

WHY IN DEMAND

One stop shop for outsourcing the

entire or large part of logistics function

Time and criticality of the shipment is

the essence

KEY END USE

SEGMENTS

The key end-user industry segments for

these services are auto, retail, pharma,

FMCG, telecom and e-commerce.

The key consumer industries of express

logistics are auto components, banking

and financial services, IT components,

apparel, pharmaceuticals, telecom

products and e-commerce, among

others

3PL Logistics or contract Logistics

Better adoption of 3PL in

India would drive growth

for the 3PL business

The dynamics of Logistics have evolved drastically in some sectors, where

manufacturers/suppliers no longer want to deal with multiple stakeholders like

transporters and warehouse operators, and want to assign professional Logistics

operators to handle their entire Logistics function. This has given rise to the 3PL

business model, where almost the entire Logistics function, including transportation,

Warehousing, and managing of inventory, is now in the hands of the Logistics

operator.

1PL

3PL

Manufacturer

outsources logistic

activities to third

party operators who

organizes activities

and may hire third

parties for the specific

execution (subcontract)

Manufacturer

supplies goods on

its own to

customers using its

own transport fleet.

Manufacturer hires

a transporter to

deliver the goods to

defined location.

2PL

October 2021

Logistics

Auto sector drives demand in the 3PL market



The 3PL market in India is largely dominated by the Automotive sector, where

there is a heavy requirement for Warehousing and transportation. In the past

few years, the 3PL segment is estimated to have clocked over 20% CAGR, with

increasing customer adoption and more players entering this space. Of this,

significant growth has been seen for 3PL from fast growing segments like e-

commerce and Organized Retail. Large segments like Automotive have mirrored

industry growth, while still growing at 15-20% CAGR.

Exhibit 7: Auto/Auto Components drives more than half of 3PL business in FY20

Organized

Pharmaceuticals,

Retail, 9%

Consumer

Durable and

Others,

FMCG, 6%

CV and

Tractors, 5%

Auto

Components,

24%

3PL growth across sectors

Auto Components

Cars and UVs

2/3 Wheelers

e-commerce

CV and Tractors

Consumer Durable and FMCG

E-Commerce,

20%

2/3 Wheelers,

12%

Cars and Uvs,

17%

Pharmaceuticals

Organized Retail

Others

FY17-20E CAGR

15%

21%

14%

31%

26%

30%

13%

Source: Industry reports, MOFSL

Outlook for the 3PL Logistics segment



While the Logistics sector is estimated to grow by 10-12% during the next five

years, the 3PL segment is expected to well outpace that and grow at 16-18%

CAGR during the same period. The reason for the high growth is attributable to

low penetration of 3PL in the Indian Logistics sector and increasing adoption of

3PL services post the pandemic.

Exhibit 9: 3PL to outpace industry growth

(INR b)

10%

3PL Market Size

1,200

Exhibit 8: Penetration of 3PL in overall Logistics is low in India

India

Global Average

580

India

Global Average

Source: MLL Annual Report, MOFSL

FY20E

FY25E

Source: MLL Annual Report, MOFSL

October 2021

Logistics

Express Logistics – Well placed for growth

e-commerce boom and

pick-up in the SME segment

to drive demand for Express

Logistics

Express Logistics offer door-to-door delivery across regions, along with real-time

shipment tracking facilities. It serves the need for time-sensitive Logistics services to

customers requiring transport of less than truckload cargo. Express Logistics services

customers for whom the speed to the market is crucial for converting sales across

regions, meeting customer expectations, and maintaining business competitiveness.

The industry, which started with urgent document delivery a couple of decades ago,

has evolved to cater to several different industries, with SME customers being the

major clients. In recent times, the e-commerce segment has come to the fore with

the sharp rise in e-commerce shipments, which are transported under the Express

category. The INR250b industry is niche and fast growing, with changing consumer

preferences and entry of new age tech driven operators.

The key consumer industries of Express Logistics today are Auto components,

Banking, and Financial Services, IT components, Apparel, Pharmaceuticals, Telecom

products, e-commerce, among others.

MARKET SIZE OF THE EXPRESS INDUSTRY

Express

industry

size:

~INR250b

Domestic

Express

(80%)

International

(20%)

Surface Express

(70%)

Key players:

TCIE, Blue Dart,

and Gati KWE

Key players:

Blue Dart

Air Express

(30%)

Source: Industry reports, MOFSL

Express Logistics: How it stands out against normal freight providers

The biggest point that stands out between Express and usual freight providers is the

time guarantee of delivering the cargo. The industry is driven by high value and low

volume cargo, where the delivery time is critical. The model is typically asset light,

with a tie-up with several small operators. The asset light model reflects in the RoE

of operators in this space, who operate at 25-30% RoE. Express providers charge a

premium for this service and focus more on reach and network building.

October 2021

Logistics

Exhibit 10: Industry dynamics

Parameter

Operating model

Key presence

Key industrial sectors

Pricing

Cash conversion cycle

Time sensitive

Truck fill factor

Competition

Express

FTL

Plying on key routes

Catering to towns/rural locations

Metro and Tier I cities

Tier II to IV cities

IT and Mobile, FMCG, Apparel, Pharma Textiles (Yarn/Fabric), Agro, Auto

High

Low

High

Low

Yes

Low

High

Route specific

Regional

Source: TCIE presentation, MOFSL

B2B against B2C players – B2C likely to grow faster, while B2B players are

more stable and profitable

Expect B2C market to

outpace B2B market in the

Express business on the

back of an e-commerce

boom

In India, the share of the Express business is almost equally split between B2B and

B2C segments. While B2B is driven by the Manufacturing segment, the B2C segment

is driven by the e-commerce space. Segments like Auto and Consumer Apparels

form part of the B2B segment.

B2B IS MORE STABLE THAN THE B2C MARKET

B2B Express

Driven by the

Manufacturing segment

Key characteristics



Sticky clientele



More profitable



Relatively less competition



Low tech usage

B2C Express

Driven by the

e-commerce segment

Key characteristics



Price sensitive



Tech usage is heavy



New entrants are capturing

market fast



Less profitable, but would grow

faster due to the e-commerce

boom

Source: MOFSL

Assessing the cost dynamics of Surface v/s Air Express

The cost of Road Express is significantly cheaper than Air Express. With a higher

weight, the cost of shipments via Air Express increases further as compared to

Surface. With an increasing proportion of heavy shipments (as against lighter

shipments a few years ago), Surface Express would continue to gain market share

from Air Express.

Exhibit 11: Cost dynamics

Mumbai-Delhi (Non-document transportation costs)

Air Package (In INR)

Ground Package (Surface) (In INR)

Air Express Cost/Surface Cost

10 kg

2,312

907

2.5

20 kg

4,064

1,253

3.2

30 kg

5,815

1,599

3.6

Source: BDE, MOFSL

October 2021

Logistics

What is making Surface Express so lucrative against Air Express?

WHY IS ROAD EXPRESS SET TO OUTGROW AIR EXPRESS?

Improving

Road

connectivity

Change of parcel

mix towards

heavier packages

Cost benefit

GST

implementation

Competition from new age players – expect lesser pressure in the B2B

space

Tech driven entrants in the market like Delhivery, Ecom Express, Safexpress, etc.

have made their presence felt in the B2B and B2C segments. Some are more

dominant in the B2C space and are now trying to enter/increase their presence in

the relatively stable B2B segment.

Based on the growth in Manufacturing and e-commerce, the Express industry is

expected to clock 16-18% CAGR over the next few years. The B2C segment would

outpace growth over B2B as demand for e-commerce grows exponentially in Tier III

and IV cities.

Exhibit 12: Expect Express industry to witness robust growth

(INR b)

FY20E

FY25E

548

250

FY20E

FY25E

Source: Industry reports, MOFSL

October 2021

Logistics

Infra development key to the growth of the Logistics sector

As indicated, the high cost of Logistics in India has been due to an inefficient modal

mix, driven by the relatively inefficient Road segment. While Road Infra has

massively improved over the last few years, Rail and Waterways are catching up

now. The DFC is nearing completion in phases (Western DFC). The strong

development of the Infra sector has significantly aided sectors like Logistics in

improving reach, network, and the pace of service execution.

Exhibit 13: Road construction has seen a massive traction in

the last few years

(kms)

Road Construction (MoRTH)

9,829

8,231

5,732

13,300

10,240

Exhibit 14: Investments in the Roads sector continue to

remain robust as a large network is yet to be developed

(INR t)

Road Sector Investments

3.8

3.3

1.9

3.6

10,855

6,061

4,260 4,410

1.8

FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21

Source: MoRTH, MOFSL

FY17

FY18

FY19

FY20

FY21

FY22

Source: NIP, MOFSL

Exhibit 15: Investments in the Railway sector to be driven by

the DFC, which would in a way transform Rail Logistics

(INR t)

Railway Sector Investments

3.1

2.6

Exhibit 16: Port investments picked up pace; Road and Rail

would continue to constitute a large chunk of the modal mix

(INR t)

Port Investments

0.2

0.1

1.3

0.9

1.4

1.3

FY17

FY18

FY19

FY20

FY21

FY22

FY17

FY18

FY19

FY20

FY21

FY22

Source: NIP, MOFSL

October 2021

Logistics

Technology evolution in Logistics: Changing industry dynamics

Emergence of internet-based freight booking

Over the last few years, we have seen the emergence of App-based freight booking

providers, which has proved to be highly successful, as it connected several

unorganized suppliers to customers. This is a win-win kind of mechanism for small

fleet owners as it enables them to link their trucks to these platforms and witness

higher demand than what they would have seen by just remaining offline. This has

led to improved utilization levels and more business for fleet operators. From a

customer stand point, it means strong fleet availability and fair pricing.

Exhibit 17: Internet-based freight booking; connecting operators to customers

Better fleet

utilization

BENEFITS

Transparent

pricing

Higher fleet

availability

Technology in Logistics operations

Usage of technologies like

Data Analytics, Automation,

Blockchain, and Cloud

Computing has ushered in

improved efficiency and led

to a faster turnaround time

New age technology has revolutionized the Logistics sector by adding a strong

differentiating factor. To minimize human intervention and to compete with peers,

extensive use of technologies is being undertaken. Some of these technologies

include Internet of Things (IoT), Data Analytics, Automation, Blockchain, Cloud

Computing, AI, and robotics. Players are constantly focusing on innovation and

implementing newer technologies to reduce costs and remain competitive.

CLOUD

COMPUTING



A virtualized pool

of computing

resources that

enables data

storage, retrieval,

networking,

software,

analytics, and

intelligence over

the internet.



It is also used in

activities like

fleet

management and

order

management

BLOCKCHAIN



Used in Logistics

software that

deals with

payments, fleet

management,

and tracking of

shipments

IOT



Helps in remote

tracking of

products and

shipments.



It helps

streamline and

optimize delivery

operations based

on real-time data

availability

ARTIFICIAL

INTELLIGENCE



Used by new age

companies to

optimize costs

and ensure that

the task is

complete in the

shortest possible

time.



It also helps in

last-mile delivery

optimization,

returns handling,

and smart

batching of

shipments

ROBOTICS



Extensively used

in warehouse

management,

which reduces

the costs of

manpower and

ushers in

efficiency

October 2021

Logistics

COVID-19 has just accelerated the pace of technology adoption

In recent times, we have seen significant usage of technology in the Logistics space.

Logistics companies, which were late adopters of technology, have seen an impact

on their business as they face difficulties in managing the demand variation due to

changes in the COVID environment. This has led to inefficiency and operational

issues. Companies engaged in the setting up of technologies for fleet operators have

seen a sharp rise in inquiries during the pandemic.

BDE has formed Med-Express for vaccine distribution through drones

BDE is working with the Telangana government to operate an experimental

Unmanned Aircraft System (UAS) for delivery of vaccines and emergency medical

supplies. These Med-Express Drone flights will deploy an immersive delivery model

to optimize current Healthcare Logistics within Telangana. The model will enable

deliveries from district medical stores and blood banks to health centers.

The government is also using technology to ensure compliance and better

tracking

Integration of the e-way bill (EWB) system with FASTag and RFID will help in the live

vigilance of vehicles. With the linking of RFID and EWB, authorities would know the

vehicles that pass toll booths and do not have EWB, which would help ensure strict

compliance. This would ensure no tax leakages and better tracking of fleet

movement across the country.

Our channel checks suggest tech adoption would be on the rise as the focus

remains on efficiency

Our channel checks suggest that while basic level technology has been in place for

some years, companies are constantly upgrading their technology-based offerings to

create value for customers. Even old established companies have upgraded

themselves to the changing industry dynamics and are constantly focusing on

adopting the latest technologies. They are focusing on using technology support in

areas of route optimization, creating efficiency through the micro tracking of the

fleet, and reducing costs.

Within the Express segment, technology is required in the B2C space and involves

massive last mile distribution. The B2C segment is plagued by issues like:



Distorted demand (highly unpredictable demand),



Distorted supply (several small sellers), and



Reverse Logistics (return of products).

B2C involves supply of small parcels to different corners, whereas B2B involves

higher volumes at select centralized locations. In B2C, the technology aspect

becomes extremely critical to ensure efficient operations, with minimal impact, due

to the return of goods, etc. This is one area which would see significant technology

developments over the next few years.

October 2021

Logistics

ANNEXURE

October 2021

Logistics

Indian Logistics industry

Greater the inefficiency in the system, the higher the Logistics costs

The Logistics sector has been plagued by inefficiencies, which has led to India’s

Logistics costs being higher (~14% of GDP) than several nations (average 8-10%).

This impacts India’s competitiveness in global markets.

Exhibit 18: Higher Logistics cost, as a percentage of India’s GDP, is impacting

competitiveness

(%)

14.0

11.0

10.0

7.6

India

USA

Europe

BRICS Average

Source: NITI Aayog, MOFSL

KEY REASONS FOR THE HIGHER COST OF LOGISTICS INCLUDE

Modal mix tilted

towards Roads



Indians use Roadways as

a major transport mode,

which is costlier v/s Rail

or Water



Other countries have a

better modal mix,

leading to cost savings

Higher fuel

consumption



Trucks used in India are

not as fuel efficient as

those used in other

countries



This increases

transportation cost per

The sector is highly

unorganized



Nearly 90% of the sector

is driven by unorganized

players



This impacts operational

efficiency, leading to

higher costs

Exhibit 19: Modal mix in India skewed towards the inefficient

Road segment

Exhibit 20: Cost of Road transport much higher than others

Modal Mix (%)

0.3

18.7

9.4

32.9

38.7

USA

Road

1.0

4.0

40.0

10.0

45.0

Europe

Rail

Water

1.0

2.0

35.0

18.0

Pipeline

1.0

6.5

4.0

17.5

Air

(INR per tonne/km)

Transport Cost

2.50

1.35

1.10

71.0

44.0

China

India

Road

Railways

Water

Source: NITI Aayog, MOFSL

October 2021

Logistics

Poor mileage of heavy trucks, leading to higher costs per km

As compared to other countries, India’s heavy truck mileage is less, leading to higher

transportation costs. This could be attributable to Road conditions and multiple

stoppages reducing truck speeds. This leads to a higher cost of transportation,

increasing overall Logistics costs. As a lion’s share of transportation happens

through Roadways, there is a big impact on the cost structure for the industry.

Exhibit 21: India’s truck fuel efficiency is lower, thereby increasing costs

(Litres/100 kms)

45.0

40.0

India

USA

China

Europe

Source: NITI Aayog, MOFSL

The fragmented nature of the industry impacts efficiency

The Indian Logistics industry is highly unorganized and significantly fragmented.

With the presence of several small unorganized players in the system, organized

players account for a mere 10% of the total market. Unorganized players consist of

small players having less than five trucks, local warehouse owners/operators,

agents, etc. Nearly three-fourth of fleet owners are small operators, owning less

than five trucks, which indicates the fragmented nature of the industry.

Exhibit 22: The unorganized sector dominates the industry

Organized

10%

Exhibit 23: A highly fragmented industry

Own more

than 20

trucks

10%

Own 5-20

trucks

15%

Own up to

5 trucks

75%

Unorganized

90%

Source: Industry reports, MOFSL

Source: NITI Aayog, MOFSL

India ranks low in Logistics performance

The Logistics Performance Index (LPI) by the World Bank is a benchmarking tool to

help countries identify the challenges and opportunities they face in their

performance on trade Logistics. India’s ranking has been below some of the key

developed as well as developing nations, and has scope to improve. While reforms

like GST and e-way bills would help, proper implementation of those measures is

extremely critical.

October 2021

Logistics

Exhibit 24: India lags several regions in terms of performance of its Logistics sector

4.20

3.99

3.89

3.61

3.38

3.18

2.58

Germany

USA

China

South Africa

India

Bangladesh

Source: World Bank, MOFSL

India is targeting to bring down Logistics costs to 10%; transportation as

well as inventory management crucial

If we break down Logistics costs, then ~30% is due to inventory (Warehousing as

well as in-transit inventory) and the balance from transportation. With reforms like

GST and e-way bill (which we have detailed in other sections), the government is

looking to reduce Logistics cost to ~10% of GDP, with an almost equal reduction in

transport and inventory costs. The reduction in cost is essential to improve

competitiveness and improve exports. As the industry consolidates and turns more

organized, it would help in better customer reach and service quality, leading to

sustainable export growth.

Exhibit 25: The Government of India is targeting a reduction in Logistics cost to 10% of GDP

(%)

0.6

4.8

Transportation

Inventory

0.1

1.5

2.5

Administration

0.6

3.3

8.7

6.2

Reduction Potential

Target Share

Source: NITI Aayog, MOFSL

Current share

October 2021

Logistics

Infrastructure development in focus

DFC could be a game changer for the Indian Railways

Why the need for DFC?

Over the past several decades, Indian Railways haven’t been able to capitalize on

the growth opportunity in the Freight segment. This is significantly evident from the

reducing share of Rail freight as against the Road segment. Despite better cost

economics, Rail freight has lost market share over the last several years. The market

share of Railways has fallen to ~30% in CY19 from 40% in CY01.

Exhibit 26: Railways have continuously lost share to Roads

Road

80%

60%

40%

20%

1970-71

1980-81

1990-91

2000-01

2011-12

2018-19

Source: Industry reports, MOFSL

Rail

The loss in market share for the Railways has been due to multiple factors:

KEY REASONS FOR RAIL LOSING SHARE TO ROADWAYS

Track sharing with

passenger Rail and

capacity constraints



Passenger and

freight trains share

the same tracks,

with the former

given higher

priority. This leads

to increasing lead

times for rail-

based freight and

reduces reliability

Inability to provide

end-to-end delivery



Unlike Roads, the

Railways are

unable to provide

last mile delivery.

This creates an

additional burden

on the consigner

Lower speed

of trains



Freight trains in India

usually travel at lower

speeds than global

standards. This

increases lead times

of goods and impacts

demand

Lack of arrangement

to aggregate smaller

loads



There is a lack of

standardized

processes to

aggregate smaller

loads for contracting

individual or partial

wagons. That’s why

non-bulk items like

Electronics are

transported via Road

Source: MOFSL

October 2021

Logistics

DFC – The solution to long pending issues

Exhibit 27: DFC v/s the existing Railway line

Source: DFCCIL, MOFSL

Exhibit 28: Eastern and Western DFC

Source: DFCCIL, MOFSL

October 2021

Logistics

Commissioning of WDFC in the near to medium term

As per the latest timelines, WDFC would be fully commissioned by CY22. While

commercial trial runs have already started on the Rewari-Madar stretch, the Madar-

Palanpur section is expected to start commercial operations soon.

Exhibit 29: Completion status

Section/ Packages

WDFC

Rewari-Palanpur

Palanpur-Makarpura

Makarpura-Sachin

Sachin-Vaitarna

Vaitarna-JNPT

Dadri-Rewari

EDFC

Bhaupur-Khurja

Bhaupur - DDU

DDU -Sonnagar

Khurja-Dadri

Pilkhani–Ludhiana

Khurja-Pilkhani

Bhaupur-Sujatpur

Sujatpur-DDU

DDU-Ganjkhwaja

Ganjkhwaja-Chirailpathu

Rewari-Madar

Madar-Palanpur

306 km

335 km

308 Km

135 Km

186 Km

109 Km

127 Km

351 km

180 Km

222 Km

37 km

100 km

46 km

179 km

222 km

Commissioned

Completed

Mar 2022

71 %

June 2022

March 2022

Commissioned

Dec 2021

June 2022

Dec 2021

Completed

June 2021

June 2022

Source: DFCCIL, MOFSL

Length

Commissioning

Target

Financial

Progress

72 %

What lies ahead?

Railways have lost volumes to Road despite being better positioned in terms of

costs. As mentioned above, the primary reasons have been the lack of a guarantee

on delivering goods on time. With DFC, this crucial hurdle is expected to be cleared,

as Railways can provide a time guarantee. This will lead to a decline in Logistics costs

for the industry. The share of Railways could increase drastically as more DFC lines

turn operational. Investments on the existing Rail network are expected to be

robust over the next five years, with DFC investments coming through. The annual

run-rate of over INR2t is expected to continue over FY20-25E.

In line with this, and as per Industry interactions, we expect EXIM container

volumes to clock ~20% CAGR post the commissioning of the WDFC.

October 2021

Logistics

Development of Waterways - Sagarmala program

The Sagarmala initiative was conceived to address the challenges and

comprehensively and holistically capture the opportunity of port-led development.

It is a national program aimed at accelerating economic development in the country

by harnessing the potential of India’s coastline and river network. As part of this

program, more than 574 projects worth INR6t have been identified for

implementation during CY15-35. At the end of Sep’19, 121 projects worth INR302b

have been completed and 201 projects worth INR3t are under implementation.

Some of the key components of Sagarmala:



Port modernization and development of new ports:

Debottlenecking and

capacity expansion of existing ports and development of new Greenfield ports.

Port connectivity enhancement:

Enhancing the connectivity of ports to the

hinterland, optimizing cost, and time of cargo movement through multimodal

Logistics solutions, including domestic Waterways (inland water transport and

coastal shipping).

Port-linked industrialization:

Developing port-proximate industrial clusters and

Coastal Economic Zones to reduce Logistics cost and time of EXIM and domestic

cargo.

Coastal Community Development:

Promoting sustainable development of

coastal communities through skill development and livelihood generation

activities, fisheries development, coastal tourism, etc.

Coastal shipping and inland Waterways transport:

Impetus to move cargo

through sustainable and environmentally-friendly coastal and inland waterways.

KEY FOCUS AREAS

Reducing the cost of

transporting domestic

cargo through

optimizing the model

mix

Lowering Logistics cost

of bulk commodities

by locating future

industrial capacities

near the coast

Reduction of Logistics

cost for EXIM and

domestic trade with

minimal infrastructure

investment

Optimizing time/cost

of EXIM container

movement

Improving export

competitiveness by

developing port

proximate discrete

manufacturing clusters

Source: MOFSL

October 2021

Logistics

Sagarmala is aimed at reducing Logistics costs for EXIM and domestic cargo, leading

to overall cost savings of INR350-400b. Some of this will be direct cost savings, while

others are savings from inventory-handling costs, resulting from time and reduced

variability in the transportation of goods, particularly containers.

National Infrastructure Pipeline (NIP) - Roads

The Roads sector has attracted significant investment over the past 10 years.

Several innovative public-private partnership (PPP) models, along with a strong

contractual framework, have helped gain significant investments from private

players too. There is a significant need to boost connectivity as national and state

highways constitute only ~5% of India’s Road network. This makes it imperative to

strengthen hinterland connectivity with ports and other key locations, including

consumption centers, metros, Tier II cities, and places of strategic importance so

that people and goods can move at a faster pace.

However, several challenges plague the sector



Private investments began to fall post FY17:

Private sector participation

declined towards the end of the 12th Plan owing to land acquisition and

regulatory issues. The allocation of central government funds to the Roads

sector has increased as EPC and Hybrid Annuity (HAM) were preferred modes of

project awards.

Delays witnessed in achieving financial closure:

Banks turned conservative in

lending to private players in this sector. The issue is visible in midsized players.

Delayed award of contracts owing to delays in approvals and clearances:

The

land acquisition cost has tripled to ~INR23.8m/hectare from ~INR8m/hectare.

To avoid project delays, the NHAI only issues tenders for projects that have

achieved 80% land acquisition. The lengthy land acquisition process has led to a

slowdown in project awards as limited tenders are getting issued.

Exhibit 30: Road sector investments to witness massive traction

(INR t)

Road Sector Investments

3.8

3.3

1.8

1.9

3.6

FY17

FY18

FY19

FY20

FY21

FY22

Source: NIP, MOFSL

In the Roads sector, total capital expenditure of INR20t by both the Centre and

states is targeted over FY20-25. Around 1,820 projects have been identified for

implementation during this period. The projects include construction of new

expressways such as the Delhi-Mumbai Expressway, Bengaluru-Chennai Expressway,

etc. Several projects being implemented include four/two laning or widening of

existing highways. Investments towards the Road segment would strengthen

connectivity and improve average truck speed, thereby improving the cost structure

of Road transport Logistics.

October 2021

COMPANIES COVERED IN THE REPORT

Logistics

Delivering

with speed

Pg33

Pg86

Riding the

e-commerce wave

Robust

business

model

Pg42

Pg78

Largest

beneficiary of

DFC

Asset ownership

at play

Pg51

Pg68

Present in the

right place

Pg59

In the Express

lane

October 2021

Container October 2021

Corporation

Initiating coverage | Sector: Logistics

TCI Express

BSE SENSEX

61,716

S&P CNX

18,419

CMP: INR1,598



TP: INR1,900 (+19%)

Buy

Delivering with speed

Stock Info

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

12M Avg Val (INR M)

Free float (%)

TCIEXP IN

38.5

61.5 / 0.8

1747 / 761

0/57/58

33.3

2023E

12.5

2.3

1.7

43.7

15.9

182.8

-0.1

26.7

26.4

13.7

36.6

8.7

26.2

0.4

0.9

Sep-20

66.8

9.8

2.1

21.4

TCIE, with its focus on the Express business after its demerger from TCI, has

accelerated (revenue grew at 16.8% CAGR during FY17-19, flat in FY20, but down

18% in FY21 due to the COVID-19 pandemic) and has almost doubled its operating

margin (up ~750bp during FY17-21 to 15.9%), backed by a higher share from B2B

clients.

The adoption of a lease-based model for most of its required assets enables

greater operational flexibilities and generates a better return on assets. TCIE is

one of the better placed Express players in the industry with: a) its robust position

in the Express industry, b) higher contribution from B2B clients, and c) focus on

growing in the SME space. Its return ratios remain best among the industry

(average RoE of ~30% over FY18-21).

We expect TCIE to clock a revenue/EBITDA/PAT CAGR of ~19/26%/24% over FY21-

24E. We value TCIE at 38x FY24E EPS to arrive at our TP of INR1,900. We initiate

coverage with a Buy rating.



Financials Snapshot (INR b)

Y/E March

2021 2022E

Net Sales

8.4

11.2

EBITDA

1.3

2.0

Adj. PAT

1.0

1.4

Adj. EPS (INR)

26.2

37.7

EPS Gr. (%)

12.9

44.1

BV/Sh. (INR)

112.8 145.0

Ratios

Net D/E (x)

-0.1

0.0

RoE (%)

26.1

29.2

RoCE (%)

25.7

28.9

Payout (%)

15.3

14.6

Valuations

P/E (x)

61.1

42.4

P/BV (x)

14.2

11.0

EV/EBITDA (x)

45.5

30.9

Div. Yield (%)

0.3

FCF Yield (%)

1.0

0.2

Shareholding pattern (%)

As On

Sep-21 Jun-21

Promoter

66.7

66.8

DII

10.8

10.5

FII

1.5

1.9

Others

21.1

20.8

FII Includes depository receipts

Stock Performance (1-year)



Well established network and asset light business model

TCIE has an enviable and difficult to replicate network presence, with over 800

branches, tie-ups with vendors for 5,000 containerized trucks, 28 sorting

centers, and caters to a whopping 40,000 locations. The company operates on

an asset light model, where it ties up with multiple small truckers for its fleet

requirements. This allows the company to generate higher return ratios by

investing in technologies and other critical value-added areas.

Higher share of business from the stable and profitable B2B segment

Given the low competition and better margin profile in the B2B segment,

complemented by TCIE’s capabilities in handling large volumes across multiple

locations/verticals, the company has strategically focused on B2B clients (~95%

of revenue). Going forward, the management’s focus is likely to remain skewed

towards the addition of B2B clients (while servicing its existing B2C clients).

Despite the jump in fuel costs, TCIE has been able to maintain its margin profile

in the B2B segment. EBITDA margin of over 15% is expected to sustain, with a

superior client mix.

Well diversified client base and spread across industries

TCIE’s business is well spread across SME (50%), Automotive (13%),

Pharmaceutical (13%), Engineering (10%), and Lifestyle (8%). No single client

contributes significantly to revenue, which provides comfort. The company has

been targeting SME clients, where it is able to offer differentiated offerings and

charge premium pricing.

October 2021

Logistics

Investing at the right place for sustainable growth

TCIE has planned a capex of INR4b over five years (~INR2b already incurred) towards

sorting centers, automation, and enhancing its tech capabilities. This would help the

company compete better and provide clients with a superior service. As against

owning its fleet, which is easily available from small unorganized players, investment

in sorting centers would provide better control over its operations and enhance

efficiency. The management would continue to lease new branch offices in existing

regions to increase its depth in those markets. These investments would pave the

way for a sustainable long-term profitable growth.

Valuation and view: Initiating coverage with a Buy rating

Over the next three years, we expect volumes to pick up as manufacturing activity

improves, thereby leading to 19% revenue CAGR over FY21-24E. With a pickup in

volume and efficiency improvements on the back of investments towards sorting

centers and automation, we expect EBITDA margin to touch ~19% in FY24E from

~16% in FY21, resulting in 26% EBITDA CAGR over FY21-24E. We expect return ratios

to remain robust ~25%. We value TCIE at 38x FY24E EPS to arrive at our TP of

INR1,900. We initiate coverage with a Buy rating.

Exhibit 31: Pan India presence

Source: Company, MOFSL

October 2021

Logistics

Exhibit 32: Wide range of TCIE’s offerings

Business is driven by the

profitable B2B Express. The

majority of the business is

from the Surface Express

segment

Solutions

B2B Solutions

(95% contribution to

TCIE’s revenue)

Segments under B2B

Surface Express

Air Express

International Air Express

Reverse Express

B2C Solutions

(5% contribution to

TCIE’s revenue)

Segments under B2C

e-commerce

Express

Details

Key characteristics of the B2B segment:

a) driven by the Manufacturing

sector, b) sticky clientele, c) more profitable than B2C, d) relatively less

competition, and e) relatively low-tech usage



Offers customized solutions across 40,000 locations through ~800

branches and ~5,000 containerized vehicles

Domestic: Connects 24 Airports, provides 24 hours delivery in Tier I

cities, and multimodal options for smaller towns

Provides services to more than 200 countries globally. Additionally

provides options for third country billing

Offers Reverse Logistics in a cost effective manner, with effective

return management

Key characteristics of the B2C segment:

a) driven by e-commerce, b) price

sensitive, c) new entrants capturing market fast, and d) heavy-tech usage



Offers solutions in multi-model distribution for optimum timely

delivery, with value added services such as cash on delivery and

definite time deliveries. The focus is on Tier II and III cities

Source: Company, MOFSL

Exhibit 33: A well-diversified client base (FY21)

Lifestyle,

Engineering

, 10%

Consumer

Durables,

Pharma,

13%

Automotive

, 13%

SME, 50%

Source: Company, MOFSL

Well diversified client mix

Its client mix is very well diversified, which highlights the experience TCIE has in

dealing with a different set of industries, where the Logistics requirements would be

very different in terms of packaging, handling, etc. This provides scope to scale up

and helps protect its business during downturns. Around 50% of revenue is from the

SME segment, with no single client contributing significantly to revenue, which is a

big positive.

October 2021

Logistics

Exhibit 34: B2B constitutes the bulk portion of the business… Exhibit 35: …driven by the high growth Surface segment

B2C Express

Air Express,

Air Intl

Express, 1%

E-com

Express, 5%

B2B

Express,

95%

Source: Company, MOFSL

Surface

Express,

85%

Source: Company, MOFSL

Business driven by high growth B2B segment

Almost the entire business of TCIE caters to B2B customers. The latter, especially

SMEs, are sticky customers and don’t change Logistics providers quickly, based on

low pricing. This would ensure volume growth, while maintaining a margin profile. In

the B2C segment, the company would focus on e-commerce customers, but would

ensure no major margin dilution to gain business. The share of B2B is expected to

remain at similar levels in the next few years, which would ensure stability in

performance. TCIE is present in the high growth surface segment, which is the most

cost effective and is expected to grow faster than Air Express. It is present in the

right sub-segments, and is well placed to capitalize on the upcoming opportunity.

Exhibit 37: Realization to pick up with regular price

increases

(INR/t)

13,166

12,539

11,944 12,045

11,543

11,727

12,057

13,825

Exhibit 36: Robust volumes to drive revenue

('000

tonnes)

14.0

14.7

Volume Handled

Volume Growth (RHS)

(%)

27.8

3.5

(20.5)

741

FY18

850

FY19

880

FY20

700

FY21

894

FY22E

5.8

7.7

946

FY23E

1,019

FY24E

FY17

FY18

FY19

FY20

FY21

FY22E FY23E FY24E

Source: Company, MOFSL

October 2021

Logistics

Exhibit 38: Margin to remain strong

(INR b)

EBITDA

EBITDA Margin (RHS)

15.9

10.2

11.6

11.8

17.6

18.6

(%)

19.0

Exhibit 39: APAT to grow with a strong operating

performance

(INR b)

APAT

11.9

7.1

8.6

NPM (RHS)

(%)

13.7

12.9

13.5

6.6

0.9

FY18

1.2

FY19

1.2

FY20

1.3

FY21

2.0

FY22E

2.3

FY23E

2.7

FY24E

0.6

FY18

0.7

FY19

0.9

FY20

1.0

FY21

1.4

FY22E

1.7

FY23E

1.9

FY24E

Source: Company, MOFSL

Exhibit 40: RoE to remain robust ~25% levels

31.8

RoE

30.7

29.5

Exhibit 41: Trades at one year forward P/E of 39x

P/E (x)

Min (x)

Avg (x)

+1SD

Max (x)

-1SD

29.2

26.1

26.7

24.5

38.8

33.1

28.7

24.3

21.0

38.8

FY18

FY19

FY20

FY21

FY22E

FY23E

FY24E

Source: Company, MOFSL

Exhibit 42: Comfortable working capital position

100

FY18

FY19

FY20

FY21

FY22E

FY23E

FY24E

Source: Company, MOFSL

Debtor Days

Creditor Days

Cash Conversion Days (RHS)

October 2021

Logistics

Initiating coverage with a BUY rating



The company has operations across India, with a presence in 40,000 locations

through its network of over 800 branches. It has tie-ups with vendors for 5,000

containerized trucks and has nearly 28 sorting centers for its operations.

The management is investing INR4b over the next five years (INR2b already

spent) towards automation, IT Infrastructure, and adding sorting centers. These

investments are more value added in nature and would help the company in

ushering efficiency and be further competitive.

Over the last few quarters, the Express segment has picked up well as the

economy began to unlock. The Express segment is likely to do well as demand

from key end-use segments picks up further.

Margin is likely to stay robust, despite the sharp increase in fuel costs. Even

during 4QFY21, the company saw a sharp jump in profitability (19% EBITDA).

Investments being undertaken in automation and sorting centers would also

help in retaining strong margin.

As manufacturing picks up, we expect demand for B2B Express to improve,

leading to 19% revenue CAGR over FY21-24E We also expect its healthy margin

profile to continue, leading to 26% EBITDA CAGR. The asset light and debt free

nature of the business provides significant comfort. It has one of the best RoE in

this space (~25%).

We value TCIE at 38x FY24E EPS to arrive at our TP of INR1,900. We initiate

coverage on TCIE with a Buy rating.

SWOT analysis

STRENGTH

Pan India presence in the

high growth B2B segment.

It follows an asset light

business model, where its

fleet requirement is leased

out. It invests only in value

added areas like

automation and sorting

centers. TCIE caters to

multiple industries, which

will help it scale up as

demand improves.

WEAKNESS

Extreme volatility in freight

rates (due to increase in

fuel costs) can impact

profitability if the company

isn’t able to pass on the

same completely. Nearly

half of business is from the

SME segment. Any

extended delays in the

recovery of the SME

segment could impact

TCIE’s volume/margin

performance.

OPPORTUNITY

As the business activity

recovers, higher volumes

are expected from the

Corporate and SME space.

With reforms like GST and

e-way bill, there will be a

greater shift in business to

the organized segment,

and TCIE is well placed to

capitalize on this

opportunity.

THREAT

Fluctuating fuel prices and

irregular movement in

freight charges can

negatively impact

profitability.

October 2021

Logistics

Exhibit 43: TP at 38x FY24E EPS

(INR m)

Bear Case

TP: INR1,650

Base Case

TP: INR1,900

Bull Case

TP: INR2,160

Revenue

EBITDA

EPS

Revenue

EBITDA

EPS

Revenue

EBITDA

EPS

FY21

8,440

1,343

26.2

8,440

1,343

26.2

8,440

1,343

26.2

FY22E

10,433

1,692

32.2

11,215

1,977

37.7

11,476

2,073

39.6

FY23E

11,091

1,811

33.9

12,461

2,318

43.7

13,419

2,673

50.6

FY24E

13,161

2,337

43.5

14,090

2,680

50.1

15,019

3,024

56.8

CAGR

Thesis

(FY21-24E)



A slower than expected pickup in the

16.0%

economic activity can impact logistics

20.3%

demand and growth could be lower than

18.4%

estimated

18.6%



Expect recovery to be swift from 2QFY22

25.9%

onwards. Margin is likely to remain

strong as volumes improve

24.2%

21.2%



If SME demand picks up faster than

31.1%

expected, then capacity utilization could

be better than expected

29.5%

Source: Company, MOFSL

Management overview

Mr. DP Agarwal – Chairman and Director

Mr. Agarwal has been associated with the Transport industry for more than 50

years. He has been contributing in developing the unorganized Logistics sector into

an organized one. Mr. Agarwal is a Commerce graduate and has been associated

with various Chambers of Commerce including CII, FICCI, and PHDCCI. He actively

participates in many social and philanthropic activities.

Mr. Chander Agarwal – Managing Director and CEO

Mr. Agarwal is a B.Sc. graduate in business administration from Bryant College, USA.

He did a stint with Transfreight USA, a 3PL specializing in lean Logistics in the

American Auto industry. He was Joint Managing Director of TCI Group and was

responsible for establishing TCIE’s leadership in the Express industry. He has been

involved with the Council of Supply Chain Management Professionals since CY04 and

is on the board of Express Council of India as a committee member to lobby with the

government to bring about relevant improvements needed in the Logistics industry

in India. Mr. Agarwal is currently serving as the Managing Director. He is responsible

for expanding TCIE’s global footprint by steering conceptualization and execution of

key strategies related to management and operational needs of the company.

Mr. Mukti Lal – CFO

Mr. Lal is a Chartered Accountant. Earlier, he was associated with TCI (the demerged

company) in various capacities for ~13 years. He was working as CFO XPS, a division

of TCI. The board has appointed Mr. Lal as CFO with effect from 18

Aug’16.

October 2021

Logistics

Financials and valuations

Income Statement

Y/E March (INR m)

Net Sales

Change (%)

Gross Margin (%)

EBITDA

Margin (%)

Depreciation

EBIT

Int. and Finance Charges

Other Income

PBT

Tax

Effective Tax Rate (%)

Reported PAT

Change (%)

Margin (%)

FY18

8,851

18.0

24.9

907

10.2

855

838

254

30.3

584

55.8

6.6

FY19

10,238

15.7

26.4

1,190

11.6

1,125

1,119

390

34.9

728

24.7

7.1

FY20

10,320

0.8

28.9

1,213

11.8

1,135

1,170

279

23.9

891

22.3

8.6

FY21

8,440

-18.2

32.9

1,343

15.9

1,254

1,322

316

23.9

1,006

12.9

11.9

FY22E

11,215

32.9

33.5

1,977

17.6

118

1,859

1,938

488

25.2

1,450

44.1

12.9

FY23E

12,461

11.1

33.9

2,318

18.6

156

2,162

2,247

566

25.2

1,681

15.9

13.5

FY24E

14,090

13.1

34.0

2,680

19.0

194

2,486

2,578

650

25.2

1,928

14.7

13.7

Balance Sheet

Y/E March (INR m)

Equity Share Capital

Total Reserves

Net Worth

Deferred Tax Liabilities

Total Loans

Capital Employed

Gross Block

Less: Accum. Deprn.

Net Fixed Assets

Capital WIP

Total Investments

Curr. Assets, Loans, and Adv.

Inventory

Account Receivables

Cash and Bank Balances

Loans and Advances

Others

Current Liab. and Prov.

Account Payables

Other Current Liabilities

Provisions

Net Current Assets

Application of Funds

FY18

1,992

2,068

407

2,518

1,798

179

1,620

1,818

1,544

122

921

646

242

898

2,518

FY19

2,595

2,672

2,825

1,961

230

1,731

2,033

1,631

171

145

964

724

200

1,069

2,825

FY20

3,296

3,373

3,454

2,126

272

1,854

230

2,222

1,658

126

346

861

620

195

1,360

3,454

FY21

4,262

4,339

4,415

2,629

345

2,284

278

2,865

1,695

272

109

789

1,022

752

228

1,843

4,415

FY22E

5,500

5,577

5,651

3,629

464

3,166

278

3,264

1,844

285

145

990

1,066

707

302

2,198

5,651

FY23E

6,950

7,027

7,099

4,629

620

4,009

278

3,986

2,048

677

161

1,100

1,184

785

336

2,802

7,099

FY24E

8,628

8,705

8,776

5,629

814

4,815

278

5,012

2,316

1,269

182

1,244

1,339

888

380

3,673

8,776

October 2021

Logistics

Financials and valuations

Ratios

Y/E March

Basic (INR)

EPS

EPS growth (%)

Cash EPS

BV/Share

DPS

Payout (incl. Div. Tax, %)

Valuation (x)

P/E

Cash P/E

EV/EBITDA

EV/Sales

P/BV

Dividend Yield (%)

Return Ratios (%)

RoE

RoCE

RoIC

Working Capital Ratios

Fixed Asset Turnover (x)

Asset Turnover (x)

Inventory (Days)

Debtors (Days)

Creditors (Days)

Leverage Ratio (x)

Net Debt/Equity

FY18

15.2

55.8

16.5

53.8

2.5

22.1

105.2

96.6

68.1

7.0

29.7

0.2

31.8

27.3

28.5

6.0

3.5

0.1

FY19

18.9

24.7

20.6

69.5

3.0

18.4

84.4

77.4

51.6

6.0

23.0

0.2

30.7

28.2

29.2

5.4

3.6

0.0

FY20

23.2

22.3

25.2

87.7

4.0

23.9

69.0

63.4

50.6

5.9

18.2

0.3

29.5

28.6

30.2

5.1

3.0

0.0

FY21

26.2

12.9

28.5

112.8

4.0

15.3

61.1

56.1

45.5

7.2

14.2

0.3

26.1

25.7

27.5

3.5

1.9

-0.1

FY22E

37.7

44.1

40.8

145.0

5.5

14.6

42.4

39.2

30.9

5.5

11.0

0.3

29.2

28.9

31.1

3.6

2.0

0.0

FY23E

43.7

15.9

47.8

182.8

6.0

13.7

36.6

33.5

26.2

4.9

8.7

0.4

26.7

26.4

28.8

3.0

1.8

-0.1

FY24E

50.1

14.7

55.2

226.4

6.5

13.0

31.9

29.0

22.5

4.3

7.1

0.4

24.5

24.3

27.9

2.7

1.6

-0.1

Cash Flow Statement

Y/E March (INR m)

OP/(Loss) before Tax

Depreciation

Direct Taxes Paid

(Inc.)/Dec. in WC

Other Items

CF from Operations

(Inc.)/Dec. in FA

Free Cash Flow

Change in Investments

Others

CF from Investments

Inc./(Dec.) in Debt

Dividends Paid

Others

CF from Fin. Activity

Inc./(Dec.) in Cash

Opening Balance

Closing Balance

FY18

838

-241

739

-627

112

-1

-628

-129

-38

-76

122

FY19

1,119

-388

-50

775

-193

582

-13

-51

-256

-299

-134

-38

-470

122

171

FY20

1,170

-317

-125

808

-188

620

-283

-124

-595

-36

-213

-9

-258

-45

171

126

FY21

1,322

-284

-249

310

1,189

-545

644

-439

-960

-77

-8

-83

146

126

272

FY22E

1,938

118

-488

-356

-79

1,133

-1,000

133

-905

-2

-211

-2

-216

272

285

FY23E

2,247

156

-566

-199

-85

1,553

-1,000

553

-926

-2

-231

-2

-235

392

285

677

FY24E

2,578

194

-650

-260

-91

1,771

-1,000

771

-924

-2

-250

-2

-254

593

677

1,269

October 2021

Logistics

October 2021

Initiating Coverage | Sector: Logistics

Transport Corporation of India

BSE SENSEX

61,716

S&P CNX

18,419

CMP: INR472



TP: INR620 (+31%)

Buy

Robust business model

Stock Info

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

12M Avg Val (INR M)

Free float (%)

TRPC IN

77.3

36.5 / 0.5

510 / 222

4/58/51

33.3



Financials Snapshot (INR b)

Y/E March

2021 2022E

Net Sales

28.0

32.4

EBITDA

2.6

3.2

Adj. PAT

1.6

2.0

Adj. EPS (INR)

20.8

25.5

EPS Gr. (%)

5.2

23.0

BV/Sh. (INR)

151.7 174.3

Ratios

Net D/E (x)

0.2

RoE (%)

14.5

15.6

RoCE (%)

12.4

13.7

Payout (%)

13.1

11.7

Valuations

P/E (x)

22.7

18.5

P/BV (x)

3.1

2.7

EV/EBITDA (x)

14.3

12.0

Div. Yield (%)

0.5

0.6

FCF Yield (%)

5.0

-1.1

Shareholding pattern (%)

As On

Jun-21 Mar-21

Promoter

66.7

DII

12.4

12.2

FII

2.4

1.7

Others

18.5

19.4

FII Includes depository receipts

Stock Performance (1-year)

TCI has developed robust multimodal Logistics capabilities via its presence across

major modes of transportation. Despite supply and demand disruptions (owing to

the COVID-19 pandemic), it has managed to grow in FY21.

It is a long-term play, backed by: a) a diversified clientele base (with no reliance

on anchor customer), b) improving share in the high-margin Less than Truck Load

(LTL) business in the Road Freight division, c) strong presence in the high growth

3PL segment, and d) rising contribution from the high margin Seaways segment.

We expect TCI to clock a revenue/EBITDA/PAT CAGR of ~17%/21%/26% over

FY21-24E. TCI currently trades at 11x FY24E EPS. We value the stock at 15x FY24E

EPS to arrive at our TP of INR620. We initiate coverage with a Buy rating.

2023E

38.4

3.8

2.4

31.7

24.2

202.5

0.1

16.7

14.8

11.0

14.9

2.3

9.7

0.7

2.3

Integrated solution provider, clients benefit with multimodal

capabilities

Backed by its experience of over six-decades in providing end-to-end integrated

Logistics solutions, TCI has built its presence across Road Freight, Rail, and

Coastal Shipping. TCI has a unique proposition with: a) an access to ~4,500

trucks and ~700 branches in the Road Freight business, b) JV with CCRI for

container Rail connectivity, and c) cargo ships in the Seaways business. Through

its divisions, TCI offers: a) FTL and LTL services, b) 3PL services through the

supply chain division, and c) transportation via Seaways and Rail. These

diversified and competitive Logistics solutions benefit clients and places TCI in a

sweet spot.

Improving LTL’s share aiding growth in the Road Freight division

TCI has a strong market position in the FTL business of the Road Freight segment

(contributes majorly to segmental revenue), backed by its strong relationship

with a diversified loyal clientele (customer base of more than 0.2m). Over the

past two years, its focus has shifted towards acquiring a large number of SME

customers and has been aiding company with: a) its improved growth prospects

(LTL business growing faster than the FTL segment), b) better margin (8-10% in

LTL vis-à-vis 3-4% in FTL), and c) lower receivable days (smaller clientele get a

lesser credit period). Over the longer term, the addition of SME clients and a

growing LTL share is likely to drive revenue growth and margin expansion.

Jun-20

66.9

10.2

1.7

21.2

Early mover advantage in the supply chain business, well-placed to

capitalize

In 3PL Logistics, TCI is in a sweet spot backed by: a) its early-mover advantage in

the 3PL industry; b) wide-service offerings, with an established execution track

record; and c) strong clientele in the domestic industry (Auto, Retail, Consumer

products, Chemicals, and e-commerce). It manages ~12m sq. ft. of Warehousing

space and has a fleet of over 4,000 trucks across India. With the addition of

clients and an increasing trend towards outsourcing Logistics activities,

especially once the pandemic ends, we expect the company’s 3PL business to do

well.

October 2021

Logistics

Seaways segment to grow well; most profitable of all

TCI mainly carries container cargo along the western coast between Kochi and

Mundra, and bulk cargo on the eastern coast. Additional ships and higher utilization

of the existing fleet (55-60% at present) would aid its growth prospects. Going

forward, its plan to add more ships, coupled with better utilization of existing ships,

would drive revenue growth.

Valuation and view: Initiate coverage with a Buy rating

Over the next three years, all key segments like the Freight and 3PL are expected to

grow well, thereby leading to 17% revenue CAGR over FY21-24E. With a pickup in

volumes and higher contribution from the Seaways segment, we expect EBITDA

margin to touch ~10.3% in FY24E from ~9.3% in FY21, resulting in 21% EBITDA CAGR

over FY21-24E. Return on Equity to remain robust at ~19%. We initiate coverage on

TCI with a TP of INR 620 (15x FY24E EPS) and a BUY rating.

Exhibit 44: Multimodal transportation network

One of the very few

companies present across

segments. Its multimodal

business model provides it

an edge over peers

Source: Company, MOFSL

October 2021

Logistics

Key segments

Road Freight (52% of revenue)



TCI provides integrated surface transport solutions such as FTL, LTL, small

packages and consignments, over dimensional cargoes, and project heavy haul.

TCI Freight has a network of 700 company-owned branches, 25 hubs and a

dedicated fleet of trucks, and hydraulic axles and trailers in operation. It also

provides storage facilities for traders and manufacturers, with its infrastructure

spread across key markets.

Exhibit 46: Freight business saw steady growth over the

years

(INR m)

Freight revenue

13,988

9,710

10,590

11,992

14,334

14,789

Exhibit 45: TCI Freight’s business

FY16

Source: Company, MOFSL

FY17

FY18

FY19

FY20

FY21

Source: Company, MOFSL

Supply chain (34% of revenue)

TCI provides Logistics and supply chain solutions to meet varied business needs. Its

offerings include supply chain design and reengineering, Logistics support to third

parties, warehousing management, and other similar services. It delivers services

through assets that include ownership and lease of all modern warehouse storage

and handling equipment, aggregating to 12m sq. ft.; and a customized fleet of over

4,000 trucks and trailers (of which 1,020 are self-owned), including refrigerated

trucks.

Exhibit 47: TCI Supply Chain’s business (end-to-end

solutions)

Exhibit 48: Supply Chain’s business performance

(INR m)

Supply chain revenue

9,126

6,310

10,241

9,490

9,711

7,374

FY16

FY17

FY18

FY19

FY20

FY21

Source: Company, MOFSL

October 2021

Logistics

Exhibit 49: Services offered by other divisions

TCI Seaways

(14% of revenue)

JV with CCRI

Transystem Logistics

Cold chain solutions



TCI has expertise in coastal shipping, container cargo movements, and transportation services. It has six cargo

ships, with a total capacity of 77,957 dead weight tonnage (DWT). The division is equipped with 10,000 containers

(of which ~8,000 are self-owned)

TCI (51% equity) has a JV with CCRI (49% equity) to provide bulk multi-modal logistics solutions by Rail and Road.

The first and last-mile needs are addressed through Road transportation, with a fleet at all terminals

TCI’s (49% equity) JV with Mitsui & Co. (51% equity). Transystem Logistics is a Logistics partner for Toyota Kirloskar

and other Japanese companies in India

Offers integrated cold chain services to meet the needs of temperature-controlled warehousing and distribution

services. Key industries catered to include Agriculture products, Processed Foods, Life Sciences, Healthcare, and

Specialty Chemicals

Source: Company, MOFSL



Exhibit 50: TCI caters to several industry segments

Industry

Automobile

Chemical

Omni-channel Retail

Engineering

e-commerce

Pharma and Healthcare

Textile

Solutions



Offers solutions for complex Logistics requirements that cover the entire supply chain from production

to the aftermarket



Offers Logistics solutions for all bulk liquid transport requirements of the Chemical industry, including

movement of hazardous and non-hazardous Chemicals



Provides Logistics services to supply the production process, and delivery of products to the distributor’s

warehouse of industry players



Offers solutions for lightweight or heavy-duty consignments, and ensure professional handling of goods



Provides fulfilment services and middle mile transportation



Offers convenient transportation, C&F, and warehousing facility for hi-tech equipment, including MRI

machines and CT scanners



Extends transportation, Warehousing, consolidating and de-consolidating services

Source: Company, MOFSL

Exhibit 51: Freight and 3PL to dominate; Seaways share to

rise marginally

Freight

Supply chain

Seaways

Exhibit 52: Revenue growth to remain strong

(INR b)

21.0

Revenue

17.2

(1.3)

3.1

Revenue Growth (RHS)

15.5

18.6

(%)

17.5

23.5

FY18

FY19

FY20

FY21

FY22E

FY23E

FY24E

FY18

27.5

FY19

27.2

FY20

28.0

FY21

32.4

FY22E

38.4

FY23E

45.1

FY24E

Source: Company, MOFSL

Exhibit 53: Margin to remain stable

(INR b)

EBITDA

EBITDA Margin (RHS)

(%)

10.3

Exhibit 54: Strong operating performance to drive PAT

(INR b)

APAT

NPM (RHS)

6.1

5.3

5.6

5.7

6.4

(%)

7.1

9.7

9.2

9.3

9.1

2.5

FY19

8.9

2.4

FY20

2.6

FY21

3.2

9.9

3.8

4.6

1.2

1.5

FY19

1.5

FY20

1.6

FY21

2.2

FY18

2.0

FY22E

2.4

3.2

FY22E

FY23E

FY24E

FY18

FY23E

FY24E

Source: Company, MOFSL

October 2021

Logistics

Exhibit 55: Return ratios to remain elevated

(%)

17.5

15.8

14.5

16.8

12.6

13.2

14.8

12.7

12.4

13.7

RoE

RoCE

Exhibit 56: Trades at one year forward P/E of 15x

P/E (x)

Avg (x)

+1SD

Max (x)

-1SD

Min (x)

18.6

15.6

16.7

24.0

18.0

12.0

6.0

0.0

19.7

11.2

16.0

14.9

6.4

2.7

FY18

FY19

FY20

FY21

FY22E

FY23E

FY24E

Source: Company, MOFSL

Exhibit 57: Comfortable working capital position

Debtor Days

Creditor Days

Working Capital Days (RHS)

FY18

FY19

FY20

FY21

FY22E

FY23E

FY24E

Source: Company, MOFSL

October 2021

Logistics

Initiating coverage with a BUY rating



TCI is one of the few companies providing a multimodal service, which allows it

to be ambitious while addressing a larger market size. The company has a fleet

of equipment/trucks (owned and leased), which allows it stability in operations.

It is relatively less dependent on external suppliers.

The company is looking to add one ship in FY22 to its six existing ships. This

capex would help increase the share of the high margin Seaways business. The

outlook for Seaways is extremely positive as the government focuses on

increasing the share of the Seaways segment in the modal mix.

The Freight segment has picked up well as demand from key end-use segments

have started to improve post the lockdown. Reforms like GST and e-way bill will

support growth.

We expect the 3PL segment to clock robust growth as companies increasingly

look to outsource their Logistics requirements. The company has already seen

an increase in inquiries in this space, and the outlook looks bright. Even a ramp-

up from existing clients would support performance.

We expect margin to stay robust, despite the sharp increase in fuel costs. Even

during 4QFY21, the company saw a sharp jump in profitability (~10% EBITDA).

With a strong growth across freight services and 3PL, we expect TCI to deliver

17% revenue CAGR over FY21-24E. We expect the margin profile to be strong

(~10%), leading to 21% EBITDA CAGR. With a strong operational performance

and no significant capex, we expect RoE to improve to ~19% in FY24E.

We value TCI at 15x FY24E EPS to arrive at our TP of INR.620. We initiate

coverage on TCI with a Buy rating.

SWOT analysis

STRENGTH

One of the few multimodal

operators in India, which

provides it an edge over the

competition. It has a

balanced asset holding

strategy, with some assets

leased and some purchased.

This balances the

dependence on third-party

suppliers. It provides a

blend of services from the

volume driven freight

business to the value-added

3PL services and the high

margin Sea business.

WEAKNESS

A sharp rise in fuel costs

could impact profitability

as the company may not

be able to pass on the

same in a weak demand

environment.

More than half of business

is from low margin freight

business. Any demand

slowdown or cost pressure

there can impact overall

performance.

OPPORTUNITY

Business activity is set to

improve as the impact of

the pandemic abates in

the next few months. With

reforms like GST and e-

way bill, business would

shift to the organized from

the unorganized segment.

Value added segments like

3PL are set to gain traction

with greater outsourcing

of the Logistics function by

companies.

THREAT

Fluctuating fuel prices and

irregular movement in

freight charges can

negatively impact

profitability. Changing

rules and regulations at

the state level can impact

business performance.

October 2021

Logistics

Exhibit 58: TP at 15x FY24E EPS

(INR m)

Bear Case

TP: INR550

Base Case

TP: INR620

Bull Case

TP: INR720

Revenue

EBITDA

EPS

Revenue

EBITDA

EPS

Revenue

EBITDA

EPS

FY21

28,024

2,612

20.8

28,024

2,612

20.8

28,024

2,612

20.8

FY22E

31,634

3,029

24.1

32,362

3,150

25.5

33,090

3,271

27.0

FY23E

36,816

3,557

28.7

38,379

3,816

31.7

40,148

4,110

35.2

FY24E

42,669

4,223

36.5

45,113

4,638

41.3

48,487

5,212

48.1

CAGR

(FY21-24E)

15.0%

17.4%

20.6%

17.2%

21.1%

25.8%

20.1%

25.9%

32.3%

Thesis



A slower than expected pickup in the

economic activity can impact logistics demand

and growth could be lower than estimated

Expect a swift recovery from 2QFY22 onwards.

Margin is likely to remain strong as volumes

improve

A faster than expected pickup in demand

could result in better than expected growth

Source: Company, MOFSL



Management overview

Mr. DP Agarwal – Chairman and Director

Mr. DP Agarwal has been associated with the Transport industry for more than 50

years. He has been contributing to the development of the unorganized Logistics

sector into an organized one. A commerce graduate, he is associated with various

Chambers of Commerce including CII, FICCI, and PHDCCI. He has actively

participated in many social and philanthropic activities for the common good.

Mr. Vineet Agarwal – Managing Director and CEO

Mr. Vineet Agarwal is the Managing Director of TCI and the Chairman of Transystem

Logistics International Pvt. (a JV of TCI and Mitsui & Co., Japan). He graduated from

Carnegie Mellon University and the Owner President Management Program from

the Harvard Business School. He joined TCI in CY96 as the Executive Director, and

has held various finance and management roles within the company. He has been

active in transforming the organization towards value-added services in the supply

chain management and multimodal logistics. Mr. Vineet Agarwal has played a

pivotal role in orienting TCI to move from being a mere trucking company to evolve

itself as one of India’s foremost integrated supply chain solutions provider. He is

currently serving as the Senior Vice President of ASSOCHAM, a leading Chamber of

Commerce in India. He is also the founding National President of the Young Leaders

Council (YLC) at the All India Management Association (AIMA). He has served as an

elected director on the Young President Organization’s (YPO) international board

and has been involved with many other leading institutions and industry forums.

Mr. Ashish Tiwari – CFO

Mr. Ashish Tiwari is the Group CFO of TCI Group since CY14. Prior to this, he was

Head of Accounts and Taxation at the TCI Group.

October 2021

Logistics

Financials and valuations

Consolidated

–

Income Statement

Y/E March (INR m)

Net Sales

Change (%)

Gross Margin (%)

EBITDA

Margin (%)

Depreciation

EBIT

Int. and Finance Charges

Other Income

PBT

Tax

Effective Tax Rate (%)

PAT before MI, Associates, and EO Items

Share of profit/(loss) of Associates and JVs

Minority Interest

Extraordinary Items

Reported PAT

Adjusted PAT

Change (%)

Margin (%)

FY18

23,499

21.0

18.9

2,165

9.2

686

1,478

322

144

1,301

287

22.0

1,014

224

1,238

52.4

5.3

FY19

27,536

17.2

18.2

2,495

9.1

774

1,721

374

195

1,542

333

21.6

1,209

251

1,453

1,460

17.9

5.3

FY20

27,178

-1.3

18.5

2,405

8.9

825

1,580

343

201

1,438

159

11.1

1,279

252

-8

1,424

1,522

4.3

5.6

FY21

28,024

3.1

18.0

2,612

9.3

928

1,684

267

255

1,672

238

14.3

1,434

201

-33

131

1,471

1,602

5.2

5.7

FY22E

32,362

15.5

18.4

3,150

9.7

942

2,208

268

285

2,225

445

20.0

1,780

231

-42

1,970

23.0

6.1

FY23E

38,379

18.6

18.3

3,816

9.9

1,120

2,697

277

348

2,768

554

20.0

2,214

288

-56

2,446

24.2

6.4

FY24E

45,113

17.5

18.7

4,638

10.3

1,243

3,396

252

452

3,596

719

20.0

2,877

374

-63

3,188

30.3

7.1

Consolidated

–

Balance Sheet

Y/E March (INR m)

Equity Share Capital

Total Reserves

Net Worth

Minority Interest

Deferred Tax Liabilities

Total Loans

Capital Employed

Gross Block

Less: Accum. Deprn.

Net Fixed Assets

Capital WIP

Total Investments

Curr. Assets, Loans, and Adv.

Inventory

Account Receivables

Cash and Bank Balances

Cash

Bank Balance

Loans and Advances

Others

Current Liab. and Prov.

Account Payables

Other Current Liabilities

Provisions

Net Current Assets

Application of Funds

FY18

153

7,465

7,618

445

4,396

12,505

7,873

1,615

6,258

563

1,044

6,113

4,249

142

127

235

1,453

1,472

597

820

4,641

12,505

FY19

153

8,766

8,920

390

4,703

14,065

9,503

2,235

7,268

1,168

7,683

5,151

155

101

268

2,056

2,095

674

1,355

5,589

14,065

FY20

154

10,085

10,239

302

4,186

14,784

10,595

3,111

7,483

450

1,354

7,547

4,873

259

132

128

268

2,081

2,050

639

1,309

102

5,497

14,784

FY21

154

11,543

11,697

273

2,767

14,823

10,684

3,275

7,409

690

1,500

7,790

5,110

395

341

124

2,089

2,565

759

1,719

5,225

14,823

FY22E

154

13,281

13,436

273

3,317

17,112

12,934

4,217

8,716

700

1,500

9,034

5,940

539

484

143

2,323

2,838

754

1,986

6,196

17,112

FY23E

154

15,458

15,612

273

2,972

18,943

14,434

5,337

9,097

650

1,500

10,846

105

6,835

981

927

170

2,755

3,149

894

2,138

118

7,697

18,943

FY24E

154

18,376

18,530

273

2,627

21,517

15,934

6,579

9,354

620

1,500

13,744

124

8,034

1,902

1,847

200

3,486

3,702

1,051

2,513

138

10,043

21,517

October 2021

Logistics

Financials and valuations

Ratios

Y/E March

Basic (INR)

EPS

EPS growth (%)

Cash EPS

BV/Share

DPS

Payout (Incl. Div. Tax, %)

Valuation (x)

P/E

Cash P/E

EV/EBITDA

EV/Sales

P/BV

Dividend Yield (%)

Return Ratios (%)

RoE

RoCE

RoIC

Working Capital Ratios

Fixed Asset Turnover (x)

Asset Turnover (x)

Inventory (Days)

Debtors (Days)

Creditors (Days)

Leverage Ratio (x)

Net Debt/Equity

FY18

16.1

52.4

25.0

98.8

1.6

13.2

29.4

18.9

18.3

1.7

4.8

0.3

17.5

12.6

11.4

3.3

1.9

0.6

FY19

18.9

17.9

29.0

115.7

1.8

12.6

24.9

16.3

15.9

1.4

4.1

0.4

17.5

13.2

11.5

3.2

2.0

0.5

FY20

19.7

4.3

30.4

132.8

2.0

14.1

23.9

15.5

16.2

1.4

3.6

0.4

15.8

12.7

11.1

2.7

1.8

0.4

FY21

20.8

5.2

32.8

151.7

2.5

13.1

22.7

14.4

14.3

1.3

3.1

0.5

14.5

12.4

11.6

2.6

1.9

0.2

FY22E

25.5

23.0

37.8

174.3

3.0

11.7

18.5

12.5

12.0

1.2

2.7

0.6

15.6

13.7

13.3

2.7

1.9

0.2

FY23E

31.7

24.2

46.3

202.5

3.5

11.0

14.9

10.2

9.7

1.0

2.3

0.7

16.7

14.8

14.3

2.8

2.0

0.1

FY24E

41.3

30.3

57.5

240.3

3.5

8.5

11.4

8.2

7.7

0.8

2.0

0.7

18.6

16.8

16.3

3.0

2.1

0.0

Consolidated

–

Cash Flow Statement

Y/E March (INR m)

OP/(Loss) before Tax

Depreciation

Direct Taxes Paid

(Inc.)/Dec. in WC

Other Items

CF from Operations

(Inc.)/Dec. in FA

Free Cash Flow

Change in Investments

Others

CF from Investments

Change in Equity

Inc./(Dec.) in Debt

Dividends Paid

Others

CF from Fin. Activity

Inc./(Dec.) in Cash

Opening Balance

Closing Balance

FY18

1,525

686

-368

-576

301

1,568

-1,511

-8

209

-1,309

184

-163

-323

-303

-44

187

142

FY19

1,786

774

-342

-758

331

1,791

-1,259

532

-49

-268

-1,576

307

-182

-338

-202

142

155

FY20

1,591

825

-410

181

242

2,428

-1,321

1,108

-55

-1,353

-523

-201

-343

-1,044

101

132

FY21

1,743

928

232

3,047

-1,241

1,807

-17

196

-1,062

-1,419

-96

-302

-1,776

209

132

341

FY22E

2,225

942

-445

-840

-18

1,865

-2,260

-395

277

-1,983

550

-231

-57

262

144

341

484

FY23E

2,768

1,120

-554

-989

-71

2,274

-1,450

824

249

-1,201

-345

-270

-16

-630

443

484

927

FY24E

3,596

1,243

-719

-1,347

-200

2,572

-1,470

1,102

342

-1,128

-345

-270

-523

920

927

1,847

October 2021

October 2021

Logistics

Initiating Coverage | Sector: Logistics

VRL Logistics

BSE SENSEX

61,716

S&P CNX

18,419

CMP: INR385



TP: INR460 (+19%)

Buy

Asset ownership at play

Stock Info

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

12M Avg Val (INR M)

Free float (%)

Financials Snapshot (INR b)

Y/E March

2021 2022E

Net Sales

17.6

20.8

EBITDA

2.5

3.0

Adj. PAT

0.5

0.8

Adj. EPS (INR)

5.1

9.0

EPS Gr. (%)

-48.9

BV/Sh. (INR)

67.6

71.1

Ratios

Net D/E (x)

0.2

0.1

RoE (%)

7.4

13.0

RoCE (%)

8.8

13.9

Payout (%)

78.4

60.9

Valuations

P/E (x)

75.5

42.6

P/BV (x)

5.7

5.4

EV/EBITDA (x)

14.2

11.5

Div. Yield (%)

1.0

1.4

FCF Yield (%)

7.0

3.5

Shareholding pattern (%)

As On

Jun-21 Mar-21

Promoter

69.6

DII

18.5

18.7

FII

2.2

3.1

Others

9.7

8.7

FII Includes depository receipts

Stock Performance (1-year)

VRLL IN

88.3

34 / 0.5

429 / 149

7/37/98

109

100.0



2023E

24.3

3.4

1.0

11.4

76.5

0.0

15.4

16.2

52.7

33.8

5.0

9.8

1.6

4.6



VRL has a long history of operations (~40 years), primarily focusing on the LTL

segment. It derives nearly 90% business from Goods Transportation, followed by

a 7% contribution from the Passenger Bus Service segment. Unlike several other

players, it operates its own fleet of 4,588 trucks (capacity: 68,000t) and 291

buses.

The company would benefit significantly from operating leverage as Logistics

activity picks up. It uses biodiesel (23% of its fuel requirement in FY21), which

helps it reduce fuel costs. Being the owner of a large fleet, it is better able to

negotiate for spare parts and maintenance-related costs. VRL majorly caters to

the LTL segment (90% of revenue from the Goods Transport segment). With the

rollout of GST, the share of FTL is shifting towards LTL, which would benefit VRL.

The management’s focus is on: a) the high margin LTL business, b) building its

network further, and c) the B2B segment, particularly the SME space. At the CMP,

VRL trades at a valuation of 29x FY24E EPS. We initiate coverage with a Buy rating

on the stock, with a TP of INR460 (35x FY24E EPS).

Established player in the LTL freight business, reforms to benefit

VRL is an established Logistics operator in the LTL business, with a 90%

contribution (~10% business from FTL). It is supported by a fleet of 4,588

owned trucks, and caters to 884 locations. It is focusing on the higher margin

LTL business. Reforms like GST and e-way bill benefits organized large players

like VRL. The reforms are expected to lead to an increase in the share of LTL as

against FTL. Demand for faster transportation would see LTL being deployed

more, unlike the traditional approach of waiting for FTL to deliver.

Well diversified end-use segment; focus is on the B2B space

VRL is primarily focused on the B2B segment, which is considered to be more

stable as compared to B2C. It is well diversified in terms of its end-use segment

and customer base, with the top 10 customers contributing only 3% revenue of

the Goods Transport business. It caters to a wide range of industries, which

includes Plastics, Food products, Rubber, Agri products, Pharma, FMCG, Metals,

etc. Its presence across so many segments and a wider customer base helps

significantly during times of a slowdown.

Jun-20

68.1

21.1

4.1

6.8

Large asset ownership – operating leverage at play

VRL operates its own fleet. These vehicles are customized, taking into account

the market dynamics. It leads to a higher payload, which would mean higher

earnings per km. The company uses biodiesel (23% of its FY21 fuel demand met

through biodiesel), which reduces fuel costs. If need be, the company hires

vehicles to meet a short-term spike in demand. Currently, almost all (93%) of its

owned trucks are debt free, with no associated financial costs. The company is

able to bargain on costs like maintenance, given its fleet size and scale of

operations, and is able to save on cost, which is not possible for those operating

with hired vehicles. As activity improves and capacity utilization increases,

operating leverage would play a significant role for VRL. The company would be

one of the key beneficiaries of a pickup in demand in this space.

October 2021

Logistics

Valuation and view: Initiating coverage with a Buy rating

We expect robust demand from the LTL segment over the next couple of years,

which would result in 16% revenue CAGR over FY21-24E. We expect the healthy

margin profile to continue, leading to 15% EBITDA CAGR. With low growth in

Depreciation due to limited capex requirement, we expect 37% PAT CAGR over

FY21-24E, with a RoE of ~17% in FY24E. We value VRL at 35x FY24E EPS to arrive at

our TP of INR460. We initiate coverage with a Buy rating.

Exhibit 59: Goods Transport and Bus operations drive majority of VRL’s revenue

GOODS

TRANSPORT

90% of VRL's revenue

BUS

OPERATIONS

7% of VRL's revenue

KEY CHARACTERISTICS



Spread across 884 locations



Has a fleet of 4,588 trucks



Assets are owned, follows a Hub

and Spoke operating model



Fleet capacity: 68,107t



GPS tracking, SMS alerts, and

predictive analysis

KEY CHARACTERISTICS



Operates through six states, 35

branches, and 17 agencies



Has a fleet of 291 busses

Operates in Tier I and II cities



Handled 1.2m passengers in

FY21



GPS tracking, SMS alerts, and

online booking

Exhibit 60: One of the largest surface network transportation companies

Source: Company; Note: A = agencies, B = branches and T = transshipment hubs

October 2021

Logistics

Exhibit 61: Share of GT has increased over the last few years

Goods Transport (GT)

Sale of Power

18%

19%

18%

Bus Transport

Air transport

16%

Exhibit 62: VRL continues to add capacity

(In numbers)

Goods trucks

381

Buses

337

291

419

396

79%

80%

81%

90%

3,941

4,007

4,398

4,754

4,575

FY16

FY17

FY18

FY19

FY20

FY21

FY17

FY18

FY19

FY20

FY21

Source: Company, MOFSL

Vehicle scrappage policy to help VRL



The government’s vehicle scrappage policy is aimed at replacing older vehicles

on Indian roads. As per the policy, commercial/passenger vehicles over 15/20

years will have to be mandatorily scrapped if they do not pass the fitness and

emission tests from 1

Apr’23.

VRL has 841 vehicles, with a total capacity of 8,407t, which are more than 15

years old. This is ~12% of its total capacity.

This benefits VRL as competitors would be forced to increase prices as fleet

charges would increase.

Exhibit 64: Margin to remain stable

(INR b)

EBITDA

EBITDA Margin (RHS)

(%)

Exhibit 63: Pick-up in economic activity to drive revenue

(INR b)

Revenue

9.7

0.4

(16.8)

Revenue Growth (RHS)

18.2

16.5

(%)

12.9

6.6

12.2

14.1

11.6

14.0

14.5

14.2

13.9

19.2

21.1

21.2

17.6

20.8

24.3

27.4

2.3

FY18

2.4

FY19

3.0

FY20

2.5

FY21

3.0

FY22E

3.4

FY23E

3.8

FY24E

FY18

FY19

FY20

FY21

FY22E

FY23E

FY24E

Source: Company, MOFSL

Exhibit 65: Strong operating performance to flow to PAT

(INR m)

4.8

Net Profit

PATM (RHS)

(%)

Exhibit 66: Return ratios to return back to over 15%

RoE

16.3

14.8

14.3

RoCE

17.3

16.2

13.9

8.8

15.4

13.0

16.5

4.4

4.3

3.8

4.1

4.3

14.2

12.8

12.3

2.6

7.4

926

FY18

919

FY19

901

FY20

451

FY21

798

FY22E

1,006

FY23E

1,166

FY24E

FY18

FY19

FY20

FY21

FY22E

FY23E

FY24E

Source: Company, MOFSL

October 2021

Logistics

Exhibit 67: Comfortable working capital position

Debtor Days

Inventory Days

Creditor Days

Net Working Capital Days (RHS)

20.0

18.0

FY18

FY19

FY20

16.0

14.0

FY21

FY22E

FY23E

FY24E

Source: Company, MOFSL

Exhibit 68: Trades at one year forward P/E of 28x

P/E (x)

Avg (x)

Max (x)

Min (x)

+1SD

-1SD

50.4

40.4

32.0

17.1

28.2

23.7

Source: Company, MOFSL

October 2021

Logistics

Initiating coverage with a Buy stance



VRL derives majority of its business from the Goods Transport segment in the

B2B segment. It has a high share of SME customers, which is the more stable

end-use segment. It caters to various end-use industries like Plastics, Food

products, Rubber, Agri Products, Pharma, FMCG, and Metals.

Margin has been steady ~14% as VRL owns the assets and is able to save on

certain costs like maintenance and spare parts through better negotiations.

Margin is likely to remain stable at current levels going forward.

We expect robust demand for Goods Transport over the next couple of years,

which would lead to 16% revenue CAGR over FY21-24E. We expect its healthy

margin profile to continue, leading to 15% EBITDA CAGR. With strong earnings

and no major debt, we expect 37% PAT CAGR, with a strong RoE (over 15%).

At the CMP, VRL trades at a valuation of 29x FY24E EPS. We initiate coverage

with a Buy rating on the stock, with a TP of INR460 (35x FY24E EPS).

SWOT analysis

STRENGTH

It has established a pan

India presence in the LTL

segment, with its own

large fleet. It is able to

save on costs, with a

better bargaining power

on aspects like

maintenance and spare

parts. It uses biodiesel

(23% of its FY21 fuel

demand), which helps save

costs. Being the asset

owner, it is in better

control of its operations.

WEAKNESS

VRL has a large fleet of

owned assets, which could

impact negatively when

business activity slows

down.

OPPORTUNITY

With reforms like GST and

e-way bill, business would

shift to the organized

segment, and VRL stands

to benefit from that

transition. It would also

benefit from the shift to

LTL from FTL.

THREAT

Volatile fuel prices and

erratic freight charges can

negatively impact

profitability. Increase in

competition from new age

tech driven operators.

October 2021

Logistics

Exhibit 69: TP at 35x FY24E EPS

(INR m)

Bear Case

TP: INR380

Base Case

TP: INR460

Bull Case

TP: INR600

Revenue

EBITDA

EPS

Revenue

EBITDA

EPS

Revenue

EBITDA

EPS

FY21

17,629

2,475

5.1

17,629

2,475

5.1

17,629

2,475

5.1

FY22E

20,290

2,847

7.6

20,833

3,017

9.0

21,151

3,117

9.9

FY23E

23,549

3,224

9.5

24,263

3,444

11.4

25,014

3,677

13.4

FY24E

26,490

3,525

10.8

27,404

3,807

13.2

28,923

4,276

17.2

CAGR

(FY21-24E)

14.5%

12.5%

28.4%

15.8%

15.4%

37.3%

17.9%

20.0%

49.9%

Thesis



Longer than expected recovery or

increase in competition can impact

performance



Expect a swift recovery from 2QFY22

onwards. Margin is likely to remain stable



If Economy normalizes faster than

expected, volumes growth to outpace

expectations.

Management overview

Dr. Vijay Sankeshwar – Chairman and Managing Director

Dr. Sankeshwar is actively involved in the day-to-day affairs of the company as a

Whole Time Director. He has over three decades of experience in the Transport

industry. He holds a Bachelor’s Degree in Commerce from Karnataka University,

Dharwad. He was a former Member of Parliament and was elected from the

Dharwad (North) constituency in the 11th, 12th and 13th Lok Sabha elections. He

was also a member of Karnataka legislature. He was a member of central

government committees such as the Committee of Finance between CY96 and CY97;

the Consultative Committee, Ministry of Surface Transport, between CY96 and CY00;

and the Committee of Transport and Tourism between CY98 and CY00. He has

received various awards including the ‘Udyog Ratna’ in CY94 by the Institute of

Economic Studies, New Delhi; Aaryabhat Award in CY02; Sir M. Visvesvaraya

Memorial Award in CY07; and the Transport Samrat in CY08. He was selected as

‘Transport Personality of the year’ during the recently concluded India Road

Transportation Awards CY12 (IRTA).

Mr. Anand Sankeshwar – Managing Director

Mr. Sankeshwar supervises the marketing operations and is actively involved in the

day-to-day affairs of the company as a Whole Time Director. He holds a Bachelor’s

Degree in Commerce from Karnataka University, Dharwad. He has 19 years of

experience in the Transport industry. He bagged the ‘Youth Icon’ award in CY04 by

the Annual Business Communicators of India and ‘Marketing Professional of the

Year’ in CY05 by the Indira Group of Companies. He was also awarded the Best 2nd

Generation Entrepreneur by TiE Global, US in CY10. He was honored as ‘Inspirational

leader of New India’ at a recently concluded ceremony in Las Vegas, US.

Mr. Sunil Nalavadi -CFO

Mr. Sunil Sambhaji Nalavadi occupies the position of Chief Financial Officer for VRL

Logistics Ltd. He has been with VRL for the last 19 years. Mr. Nalavadi is also an

Associate for The Institute of Chartered Accountants of India.

October 2021

Logistics

Financials and valuations

Income Statement

Y/E March (INR m)

Net Sales

Change (%)

Gross Margin (%)

EBITDA

Margin (%)

Depreciation

EBIT

Int. and Finance Charges

Other Income

PBT

Tax

Effective Tax Rate (%)

Reported PAT

Change (%)

Margin (%)

FY18

19,223

6.6

31.4

2,342

12.2

976

1,366

114

142

1,394

468

33.6

926

31.3

4.8

FY19

21,095

9.7

30.1

2,440

11.6

1,006

1,434

109

1,405

486

34.6

919

-0.7

4.4

FY20

21,185

0.4

33.4

2,983

14.1

1,675

1,307

367

103

1,043

142

13.6

901

-2.0

4.3

FY21

17,629

-16.8

33.0

2,475

14.0

1,598

877

368

129

637

187

29.3

451

-50.0

2.6

FY22E

20,833

18.2

32.5

3,017

14.5

1,738

1,280

347

135

1,067

269

25.2

798

77.1

3.8

FY23E

24,263

16.5

32.0

3,444

14.2

1,885

1,560

356

142

1,345

339

25.2

1,006

26.0

4.1

FY24E

27,404

12.9

32.0

3,807

13.9

2,032

1,775

365

149

1,559

393

25.2

1,166

15.9

4.3

Balance Sheet

Y/E March (INR m)

Equity Share Capital

Total Reserves

Net Worth

Deferred Tax Liabilities

Total Loans

Capital Employed

Gross Block

Less: Accum. Deprn.

Net Fixed Assets

Capital WIP

Total Investments

Curr. Assets, Loans, and Adv.

Inventory

Account Receivables

Cash and Bank Balances

Cash

Bank Balance

Others

Current Liab. and Prov.

Account Payables

Other Current Liabilities

Provisions

Net Current Assets

Application of Funds

FY18

903

5,029

5,932

808

812

7,552

9,044

2,795

6,250

2,296

241

807

194

185

1,054

1,071

800

203

1,225

7,552

FY19

903

5,556

6,459

738

1,407

8,604

10,835

3,785

7,051

416

2,311

298

795

131

126

1,086

1,174

849

264

1,136

8,604

FY20

903

5,265

6,169

440

1,893

8,502

15,105

5,202

9,903

2,304

293

856

134

129

1,021

3,750

3,368

347

-1,445

8,502

FY21

883

5,088

5,971

440

1,196

7,607

15,850

6,307

9,544

2,381

395

639

185

183

1,162

4,379

136

3,911

332

-1,998

7,607

FY22E

883

5,400

6,284

440

946

7,670

17,250

8,044

9,206

2,904

400

799

322

321

1,384

4,502

114

3,995

392

-1,597

7,670

FY23E

883

5,876

6,760

440

846

8,046

18,650

9,929

8,721

3,908

399

931

967

966

1,612

4,645

133

4,055

457

-737

8,046

FY24E

883

6,512

7,396

440

746

8,582

20,050

11,961

8,089

5,077

375

1,051

1,830

1,829

1,820

4,645

150

3,979

516

431

8,582

October 2021